Benchmarks bolstered gains for the third consecutive day after several Fed presidents “downplayed” the Federal Reserve’s decision of tapering bond purchasing program by the end of 2013. A couple of better-than-expected domestic reports also added to investor optimism. The Dow Jones posted three figure gains for the third consecutive day. Of the top ten S&P 500 industry groups, financial stocks gained the most. Materials stocks were the only loser.
For a look at the issues facing today's markets, read our Ahead of Wall Street for June 28 article.
The Dow Jones Industrial Average (DJI) gained 0.8% to close the day at 15,024.46. The S&P 500 increased 0.6% to finish yesterday’s trading session at 1,613.20. The tech-laden Nasdaq Composite Index rose 0.8% to end at 3,401.86. The fear-gauge CBOE Volatility Index (VIX) lost 2.0% to settle at 16.86. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.3 billion shares, marginally below 2013’s average of 6.36 billion shares. Advancing stocks outnumbered the decliners. For 81% that advanced, 17% declined.
Volatility has dominated the markets following Ben Bernanke’s testimony which said tapering could be implemented over the Fed’s “next few meetings”. Last week, the Central Bank said it could slowdown its $85 billion bond purchase program and completely end it by mid-2014. Apart from these developments, a possible credit crunch in China also added fears in markets. However, these fears were overshadowed by encouraging domestic reports and low GDP numbers released recently. The report GDP reassured investors that tapering could go off the table, boosted market sentiment. Although the S&P 500 has rallied about 2.6% over the last three sessions, it is still nearly 3% below its all-time high.
Yesterday’s market was largely dominated by Fed officials’ comments. Three Fed officials hinted towards the fact that the Fed’s $85 billion bond purchase program could go on if the job market does not improve as expected. Federal Reserve Board Governor Jerome Powell said: “If the performance of the economy is weaker, the Committee may delay before moderating purchases or even increase them.”
Adding to the same tone, William Dudley, president of the Federal Reserve Bank of New York added that if economic figures contradict Fed’s estimates, bond purchases increase. Dudley said: “If labor market conditions and the economy's growth momentum were to be less favorable, I would expect that the asset purchases would continue at a higher pace for longer.” Dennis Lockhart, president of Atlanta Federal Bank said the pace of bond purchase program depends on the trajectory of future economic growth.
According to the National Association of Realtors, Pending Home Sales Index surged 6.7%, well above consensus estimates of 1%. The index came in at 112.3 in May above last month’s index of 105.2. On a year over year basis, the index increased 12.1%. The contract activity has also grown at its fastest pace since December 2006. Existing home sales are expected to increase within a range of 8.5% and 9.0% to about 5.07 million marginally higher than 5.03 million, recorded in 2007. The existing home sales data is at its peak level in last 7 years.
On the other hand, encouraging domestic reports also boosted investor sentiment. According to the U.S. Department of Commerce, personal income for May increased 0.5% compared to the consensus estimate of 0.3%. This increase is also higher that April’s growth of 0.1%. Personal consumption expenditure increased 0.3% in line with consensus estimates, unchanged from last month’s growth.
Meanwhile, the U.S. Department of Labor said the number of Americans filing for unemployment benefits decreased by 9,000. Initial claims numbers came in at 346,000, marginally lower than the consensus estimate of 345,000. The 4-week moving average decreased to 345,750 from 348,500.
Meanwhile, the Bloomberg Consumer Confidence Index came in at -28.3, higher than previous week’s figure of -29.4. The index is at its highest level since January 2008. Improvements in the housing sector and better job conditions have boosted demand in housing and the automobiles sector..
All the top ten S&P 500 industry groups posted gains among which financial stocks emerged as the biggest gainer. The Financial Select Sector SPDR (XLF) gained 1.4%. Stocks such as Bank of America Corp (NYSE:BAC), Wells Fargo & Co (NYSE:WFC), JPMorgan Chase & Co. (NYSE:JPM), PNC Financial Services (NYSE:PNC) and U.S. Bancorp (NYSE:USB) gained 2.0%, 1.3%, 1.2%, 0.6% and 0.6%, respectively.
The materials sector was the only loser. The Materials Select Sector SPDR (XLB) lost 0.1%. Stocks such as Air Products & Chemicals, Inc. (NYSE:APD), Monsanto Company (NYSE:MON), Praxair, Inc. (NYSE:PX), Ecolab Inc. (NYSE:ECL) and Airgas, Inc. (NYSE:ARG) lost 2.8%, 2.1%, 0.9%, 0.3% and 0.9%, respectively.