Concerns over global economic growth and comments from the Kansas City Federal Reserve’s Bank President dampened investor sentiment on Tuesday. Meanwhile, China’s services sector grew marginally indicating sluggish growth. Japan announced plans to boost the economy by introducing tax reforms and provide benefits to special economic zones to attract investment. The unemployment rate in Spain fell in May, providing optimism to the government. Of the top ten S&P 500 industry groups, financials stocks suffered maximum losses. Consumer staples stocks were the only gainer.
The Dow Jones Industrial Average (DJI) lost 0.5% to close the day at 15,177.54. The S&P 500 decreased 0.6% to finish yesterday’s trading session at 1,631.38. The tech-laden Nasdaq Composite Index slipped 0.6% to end at 3,445.26. The fear-gauge CBOE Volatility Index (VIX) dropped 0.1% to settle at 16.27. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.8 billion shares, well above 2013’s average of 6.36 billion shares. Declining stocks outnumbered the advancers. For the 62% that declined, 35% advanced.
Benchmarks suffered losses amounting to around 0.5% on Tuesday following comments from Kansas City Federal Reserve Bank President Esther George. Markets have been extra sensitive to comments from Federal Reserve officials on the bond purchase program. The first quarter witnessed markets exceed the all-time highs it created in the past, on the back of the Fed’s monetary stimulus. However, in the second quarter, encouraging domestic reports have provided impetus to the Fed on tapering or slowing the bond purchase program. Since the speculation on decision on whether or not bond-purchasing program should be continued or not has started, markets have been ending in the red.
Yesterday, George, who is a big critic of the bond purchase program, said financial markets would be independent if the program is tapered. She added that markets will eradicate dependence on the “ultra-easy money” it has been getting from Central Banks.
According to the U.S. Department of Commerce, the trade balance for April stood at $40.3 billion compared to $37.1 billion reported in March. This figure is better than the consensus estimate of $41.2 billion. Exports of goods increased $1.8 billion while imports increased $5.0 billion. Exports of services increased $0.4 billion while imports of services increased $0.3 billion.
China’s services sector, which constitutes about 46% of the nation’s GDP, increased marginally. The HSBC/Markit Purchasing Managers' Index (PMI) for service came in at 51.2 for May compared to 51.1 in April. This slight increase indicates the struggle the nation’s economy is going through to regain its momentum. Recently, China posted a series of discouraging domestic reports which confirm the skepticism over China’s slow economic growth. The official services PMI index had come in at 54.3 in May compared to 54.5 in April. HSBC/Markit manufacturing PMI index was below the 50 mark to 49.2 while official manufacturing activity inched up to 50.8. The country’s exports, retail sales figures and industrial output figures due later this week will provide further indications about the growth trajectory of the country.
Meanwhile, Japanese Prime Minister Shinzo Abe plans to implement economic reforms to boost investment in an attempt to pull Japan out of economic stagnation. The government plans to deregulate significant sections of the economy and offer huge corporate tax cuts on special economic zones to attract investments. The government expects to increase infrastructure exports by three times and double farm exports by 2020. By 2018, through U.S.-led Trans-Pacific Economic Partnership (TPP) and other trade deals, the government plans to raise export related trade-free deals from the current level of 19% to 70%.
Spain’s unemployment rate decreased in May. However, economic conditions worsened throughout the Euro Zone. The unemployment rates in Spain declined by 1.97%, but 4.89 million remain unemployed. The decrease in the unemployment rate is attributable to seasonal or contractual hires in May. Even if Spain comes out of recession, as predicted by economists, next year unemployment will still remain a problem. In the first quarter, the unemployment rate in the country stood at 27%.
Consumer staples stocks were the only gainer. The Consumer Staples Select Sect. SPDR (XLP) increased 0.02%. Stocks such as Colgate-Palmolive Company (NYSE:CL), the Coca-Cola Company (NYSE:KO), PepsiCo, Inc. (NYSE:PEP), Wal-Mart Stores, Inc. (NYSE:WMT) and Hershey Co. (NYSE:HSY) increased 0.5%, 1.5%, 0.3%, 0.3% and 0.5%, respectively.
Financials stocks suffered the most. The Financial Select Sector SPDR (XLF) lost 0.9%. Stock such as Bank of America Corp (NYSE:BAC), Goldman Sachs Group, Inc. (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Co. (NYSE:WFC) and KeyCorp (NYSE:KEY) declined 1.4%, 1.2%, 0.8%, 0.7% and 0.9%, respectively.