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Benchmarks finished in the green riding on positive investor sentiment. A few better-than-expected corporate results added to the prevailing optimism. Meanwhile, the Federal Reserve discussed the risks faced by the financial system. However, there were no major economic events or catalysts which could push the stocks further. Among the top ten S&P 500 industry groups, health care stocks were the major gainers while energy stocks were the biggest losers.
The Dow Jones Industrial Average (DJI) increased 0.2% to close the day at 15,118.49. The S&P 500 gained 0.4% to finish Friday’s trading session at 1,633.70. The tech-laden Nasdaq Composite Index rose 0.8% to end at 3,436.58. The fear-gauge CBOE Volatility Index (VIX) decreased 4.1% to settle at 12.59. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 5.7 billion shares, below 2013’s average of 6.36 billion shares. Advancing stocks outnumbered the decliners. For the 57% that advanced, 39% declined.
The benchmarks fluctuated between small gains and losses but managed to enter positive territory towards the end of Friday’s trading session. This is the third consecutive week when benchmarks have registered gains. The Dow Jones, S&P 500 and Nasdaq have increased 1.0%, 1.2% and 1.7% this week.
On Friday, Federal Reserve Chairman, Ben Bernanke addressed a banking conference hosted by the Federal Reserve Bank of Chicago. Addressing concerns over the risks that the shadow banking system still offers, Bernanke said funding markets is not enough to offset a major default. Shadow banking is a group of non-bank financial intermediaries which offer services similar to a traditional bank. Shadow banks were deeply involved during the financial crisis which started during 2008 with the bankruptcy of Lehman brothers.
"While the shadow banking sector is smaller today than before the crisis...regulators and the private sector need to address remaining vulnerabilities," Bernanke said.
Commenting on the safety of the banks, Bernanke said the Central bank is keeping a strict vigil on the asset markets to avoid any kind of risks. On the issue of “too-big-to-fail banks”, Bernanke advised regulators to ask banks to increase their stake in the form of equity rather than imposing an “arbitrary limit on size”. This way the banks would face less risk.
Meanwhile, according to the Department of the Treasury, monthly total budget receipts aggregated to $406.7 billion and a surplus of $112.9 billion. The surplus of $112.9 billion came in above the consensus estimate of $107.5 billion.
On the earnings front, shares of True Religion Apparel, Inc. (NASDAQ:TRLG) gained almost 8.1%. Net sales of the company increased 13.1%. However, the operating margin came down to 2.5% from 16.1%. The company further said that TowerBrook Capital Partners, an investment management firm, might acquire True Religion for approximately $835 million. Following these developments, investor sentiment grew bullish towards the company.
Of all the S&P 500 companies, almost 90% of the companies have reported quarterly results until now, out of which, 67% of the companies have beaten the Street’s earnings expectations. However, only 46% have surpassed revenue estimates.
Of the top ten S&P 500 industry groups, health care stocks gained the most. The Health Care SPDR (XLV) gained 1.0%. Stocks such Johnson & Johnson (NYSE:JNJ), Pfizer Inc. (NYSE:PFE), Merck & Co., Inc. (NYSE:MRK), Gilead Sciences, Inc. (NASDAQ:GILD) and Amgen, Inc. (NASDAQ:AMGN) increased 0.7%, 0.4%, 1.0%, 0.2% and 2.1%, respectively.
Energy stocks were the biggest losers. The Energy Select Sector SPDR (XLE) lost 0.5%. Stocks such as Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), Hess Corp. (NYSE:HES), Marathon Petroleum Corp (NYSE:MPC) and Murphy Oil Corporation (NYSE:MUR) fell 0.3%, 1.0%, 2.3%, 1.4% and 1.8%, respectively.