Benchmarks ended in the green on Monday, as investors attempted to predict the Federal Reserve’s next move ahead of its two day policy meeting. Investor sentiment also got a boost from indications of a strong recovery in the economy led by encouraging U.S. manufacturing data and upbeat data from Europe. Two major corporate deals also captured investors’ attention for the day. The technology sector was the highest gainer among the S&P 500 industry groups while consumer staples were the only sector which sustained losses.
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The Dow Jones Industrial Average (DJI) gained 0.8% to close the day at 15884.57. The S&P 500 rose 0.6% to finish yesterday’s trading session at 1786.54. The tech-laden Nasdaq Composite Index climbed 0.7% to end at 4029.52. The fear-gauge CBOE Volatility Index (VIX) increased 1.7% to settle at 16.03. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 5.8 billion shares. Advancing stocks outnumbered the decliners. For the 64% that advanced, only 33% declined.
Several positive economic reports released recently had led investors to believe that the Federal Reserve would soon reduce its bond purchases. Encouraging industrial production numbers added to such expectations. The report showed an increase in U.S. manufacturing output for the fourth month in a row, including November.
According to the Board of Governors of the Federal Reserve System, industrial production increased by 1.1% in November. This was higher than the consensus estimate of 0.6% increase and higher than the 0.1% increase registered in October. Manufacturing production increased 0.6% in November, marking its fourth consecutive month of gains. Production at mines increased 1.7%, negating the drop of 1.5% recorded in October. The utilities index increased 3.9% in November, due to a boost in demand for heating as a result of colder temperatures. Capacity utilization for the industrial sector increased 0.8% to 79.0% in November. This is 1.2% below its long-run average, from 1972-2012.
On the international front, Eurozone’s economy received a boost from a rise in new orders. A survey by economists of London-based company Markit showed that business sentiment across the region improved for the first time after three months, despite ongoing weakness in the French economy. The purchasing managers’ index increased to 52.7 in December, compared to 51.6 in November. This was the index’s highest level in three months. Any figure higher than 50 indicates an expansion in the economy. Markit’s chief economist, Chris Williamson said on Monday the rise is a “big relief and puts the recovery back on track”.
Two major deals impacted investor sentiments on Monday. In what is being viewed as a major development, chipmaker Avago Technologies Ltd (NASDAQ:AVGO) announced that it will buy LSI Corp (NASDAQ:LSI) for $6.6 billion. The move will allow Avago to enter the fast-growing storage chip market. As per the offer, $11.15 per share will be paid in cash. The offer is a 41% higher than LSI's Friday closing price of $10.98. The deal will be funded using $1 billion provided by private equity group, Silver Lake Partners. Further, a $4.6 billion term loan will be taken from a small group of banks, while $1.0 billion will be provided from cash in hand.
In another major development, American International Group Inc. (NYSE:AIG) said the company is willing to sell its aircraft-leasing business to AerCap Holdings N.V. (NYSE:AER) for nearly $5.4 billion. The company has been attempting to sell International Lease Finance Corp for four years to help return a $182 billion bailout package received from the government in 2008.
In other economic reports, the New York Empire state index came in at 0.98 in December, below the consensus estimate of 4.75. The general business conditions index increased three points to touch1.0. New orders increased, but remained in the negative territory at -3.5, while the shipments index increased to 7.7. The unfilled orders index dropped to -24.1, and the inventories index declined to -21.7. Both indexes recorded their lowest levels since 2009.
The technology sector was the biggest gainer among the S&P 500 industry groups on Monday. The Technology SPDR (XLK) gained 1.0%. Stocks such as Apple Inc. (NASDAQ:AAPL), Google Inc. (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), International Business Machines Corp. (NYSE:IBM), and AT&T Inc. (NYSE:T) increased 0.6% 1.2%, 0.5%, 2.9%, and 0.9%, respectively.
The consumer staples sector was the only loser among the S&P 500 industry groups on Monday. The Consumer Staples SPDR (XLP) lost 0.02%. Stocks such as The Procter & Gamble Company (NYSE:PG), Philip Morris International Inc. (NYSE:PM), Wal-Mart Stores, Inc. (NYSE:WMT), Walgreen Company (NYSE:WAG), and SYSCO Corporation (NYSE:SYY) decreased 0.8%, 0.6%, 0.4%, 0.2%, and 0.23, respectively.