Fears of Federal Reserve easing off the bond purchase program triggered a sell-off on Wednesday, pushing benchmarks into negative territory. Meanwhile, in an attempt to lower the nation’s cost, Germany is planning to introduce a new bond named “Deutschlandbond”. Industrial output of Europe increased beyond market estimates, contrary to expectations. All the top ten S&P 500 industry groups suffered losses out of which consumer discretionary stocks suffered the most.
The Dow Jones Industrial Average (DJI) lost 0.8% to close the day at 14,995.23. The S&P 500 decreased 0.8% to finish yesterday’s trading session at 1,612.52. The tech-laden Nasdaq Composite Index declined 1.1% to end at 3,400.43. The fear-gauge CBOE Volatility Index (VIX) increased 8.9% to settle at 18.59 and has surged 20% over the week. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.2 billion shares, marginally below 2013’s average of 6.36 billion shares. Declining stocks outnumbered the advancers. For the 22% that advanced, 77% declined.
Investor confidence has been falling since Bernanke’s testimony, at Capitol Hill, where he indicated that the $85 billion bond purchase program would come to an end, albeit slowly. For the 7th time in past 15 days the Dow Jones has oscillated in the range of 200 points. As a result, the fear gauge spiked 20% last week. The S&P 500 has declined 3.4% since May 21, a day before Bernanke’s testimony took place. Yesterday, the index closed just a couple of points above the support level of 1610.55.
On the international front, Germany plans to present a new bond named “Deutschlandbond”. This bond will be introduced during the start of July. Ever since the Euro Zone has started reeling under the financial crisis, borrowing costs have gone down to a record low. In comparison, Germany has been paying higher rates, indicating a weak economy. The new bond will be introduced collectively by 16 states of Germany to lower these costs. The value of the bond is expected to vary between 3 to 5 billion euro. A government official added that if this pilot step succeeds, the government would consider taking similar steps in future. As of now, the maturity period of bond is unknown but “finance ministries of some states” indicate the tenure will be between 7 and 10 years.
Meanwhile, industrial growth from the Euro Zone came in above market expectations. The industrial production in the region increased 0.4%, well above estimates of a decline of 0.2%. Industrial productions in energy output declined 1.5%. Industrial production of cars, electronics and durable consumer goods contracted 2.7%. On a year over year basis, industrial production declined 0.6%.
Industrial production in Europe’s largest economies Germany and France increased 1.2% and 2.3% while in Italy, industrial production declined 0.3%. The region’s economy is still struggling to get back on its feet. The Euro Zone is facing the heat of the sovereign debt crisis. As a result, small and medium sized companies are facing difficulties to refinance their operations.
All the top ten S&P 500 industry groups suffered losses among which, consumer discretionary stocks suffered the most. The Consumer Discretionary SPDR (XLY) lost 1.1%. Stocks such as The Home Depot, Inc. (NYSE:HD), The Walt Disney Company (NYSE:DIS), Comcast Corporation (NASDAQ:CMCSA), Amazon.com, Inc. (NASDAQ:AMZN) and News Corp (NASDAQ:NWSA) lost 1.6%, 1.3%, 1.6%, 1.1% and 2.3%, respectively.