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Strong fourth quarter initial GDP numbers and Facebook’s earnings results helped benchmarks return to their winning ways. In fact, the S&P 500 scored its biggest jump in more than a month and that has put the index on course to post weekly gains. Facebook’s gains also helped push the technology sector higher and it emerged as one of the top performing sectors yesterday. For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article
The Dow Jones Industrial Average (DJI) jumped almost 110 points or 0.7% to close at 15,848.61. The Standard & Poor 500 gained significantly, by 1.1% to finish Thursday’s session at 1,794.19. The tech-laden Nasdaq Composite Index added 1.8% to move up to 4,123.13. The fear-gauge CBOE Volatility Index (VIX) dropped 0.4% to settle at 17.29. Total volume on the New York Stock Exchange was 3.5 billion. Advancers dominated decliners on the NYSE; as for 74% stocks that gained, 23% stocks closed lower.
Markets were finally able to score big after trending lower for most of the last two weeks. Till Wednesday, S&P 500 had suffered four losses in five trading sessions and the blue-chip index had closed in the red six times of seven trading sessions. Markets’ negative mood has almost been a dominant factor all this month, with selling pressure intensifying over the last couple of weeks.
However, benchmarks were able to post a rare win yesterday. The gains secured the S&P 500 its best percentage jump since Dec 18. The tech-laden Nasdaq too joined the rally and had its best percentage jump since Oct 10.
The Bureau of Economic Analysis reported that real gross domestic product improved at a 3.2% annual rate in fourth quarter. This was a tad higher than consensus estimate of 3.1%. Strength in personal consumption expenditures (PCE), exports, nonresidential fixed investment, private inventory investment negated weakness in federal government spending and residential fixed investment. Real personal consumption expenditures were up by 3.3% in Q4, sharply higher compared with third quarter’s 2% growth.
Shares of Facebook, Inc. (NASDAQ:FB) jumped 14.1% after reporting a strong fourth quarter performance. The social networking giant’s revenues jumped 63.2% year on year, boosted by a 76.5% year-on-year surge in advertising revenues.
Facebook also noted that its messenger was among the top most-downloaded applications on Apple Inc.’s (NASDAQ:AAPL) iOS and Google Inc.’s (NASDAQ:GOOG) Android in Dec 2013. Messenger users jumped 70.0% in the fourth quarter. Separately, it was reported that Google had struck a deal to sell its Motorola business to China’s Lenovo. Google’s shares were up 2.6%.
Facebook’s strength was also reflected in other key technology stocks. The technology sector was among the top performers for the day and Technology Select Sector SPDR (XLK) gained 1.2%. Key stocks such as Oracle Corporation (NYSE:ORCL), Cisco Systems, Inc. (NASDAQ:CSCO), Adobe Systems Inc. (NASDAQ:ADBE), Red Hat, Inc. (NYSE:RHT) and International Business Machines Corporation (NYSE:IBM) gained 1.2%, 1.5%, 1.6%, 2.8% and 0.5%, respectively.
Coming back to economic data, initial claims were reported to have increased 19,000 from a week prior to 348,000 in the week ending Jan 25. This was higher than consensus estimate of a reading of 330, 000.
The gains were a much-needed relief for the markets. Declines over the last few days were largely due to the contraction in China’s manufacturing sector and concerns emanating from political and economic issues in the emerging markets. Last week, emerging-market currencies suffered their worst selloff in five years.
In addition, benchmarks were dealt a severe blow after the central bank’s decided to cut another $10 billion from its original $85 billion third quantitative easing plan. The decision came during what was Fed chairman Ben Bernanke’s last-policy setting meeting. Interest rates will continue to be low, but the central bank may continue with its tapering every month.