Benchmarks finished mixed on Friday following Bernanke’s comments on Wednesday regarding slowing and ending of the $85 billion bond purchase program. The Nasdaq declined for the third consecutive day, mostly dominated by below than expected results of technology major Oracle. There were no domestic economic reports on Friday but investors remained concerned over the credit situation in China. Of the top ten S&P 500 industry groups, consumer staples stocks emerged as the biggest gainer. Materials stocks suffered the most.
The Dow Jones Industrial Average (DJI) gained 0.3% to close the day at 14,802.63. The S&P 500 increased 0.3% to finish Friday’s trading session at 1,592.64. The tech-laden Nasdaq Composite Index fell 0.2% to end at 3,357.25. The fear-gauge CBOE Volatility Index (VIX) lost 7.8% to settle at 18.90. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 10.29 billion shares, well above 2013’s average of 6.36 billion shares. Declining stocks and advancing stocks were same at 49%.
Bernanke’s comments on slowing the bond purchase program by the end of the year and completely stopping it by mid-2014 created panic among investors. The volatility index reached above 20, up 23% for the first time in 2013. Last week, the Nasdaq, the Dow Jones and the S&P 500 dropped 1.9%, 1.8% and 2.1%, respectively. The bond purchase program was the major driving force behind the benchmarks impressive rally this year. Fears started seeping in following Bernanke’s testimony on May 22 when he hinted at slowing the bond purchase program. Since May 21, the S&P 500 index has declined 4.6%.
A rising credit crunch coupled with discouraging economic reports released by China last week added to investor woes. The world’s second largest economy is reeling under the pressure of slow economic growth. Last week, China reported a decrease in factory activity which plunged to a nine-month low. In addition to this, interbank lending rates of the country zoomed to its highest level in more than 10 years. China’s seven day repurchase rate increased to 12% while weighted average overnight repo rate touched 13.1%. Beijing refrained from further cash injections in the market as a result of which interest rates spiked. Taking into account corporations, households, local governments and central banks, the country’s total debt is more than double of its GDP.
The HSBC Purchasing Managers’ Index came for the country in at 48.3 and the manufacturing index came in at below 50 because of the decline in export orders from major trading partners such as the United States and Europe. China had initially set a growth target for 7.5%. But discouraging economic reports over the past few weeks means it is highly improbable that the country will achieve this target.
Consumer Staple stocks emerged as the biggest gainer among the top ten S&P 500 industry stocks. The Consumer Staples Select Sect. SPDR (XLP) gained 1.5%. Stocks such as The Procter & Gamble Company (NYSE:PG), Colgate-Palmolive Company (NYSE:CL), The Coca-Cola Company (NYSE:KO), Philip Morris International Inc. (NYSE:PM) and Wal-Mart Stores, Inc. (NYSE:WMT) gained 2.9%, 1.7%, 1.6%, 1.0% and 0.7%, respectively.
Materials stocks were the biggest losers. Stocks such as The Dow Chemical Company (NYSE:DOW), Monsanto Company (NYSE:MON), Praxair, Inc. (NYSE:PX), Ecolab Inc. (NYSE:ECL) and PPG Industries, Inc. (NYSE:PPG) lost 1.7%, 0.3%, 1.0%, 0.3% and 0.8%, respectively.