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Merger and acquisition activity in the food industry and better-than-expected initial claims helped benchmarks close in the green on Thursday. Investors chose to focus on the positives rather than on GDP data that showed the economy contracted in the first quarter. Thursday’s gains helped the S&P 500 hit an intraday high and close on a record high for the 13th time this year. 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) gained 0.4% to close Thursday’s trading session at 16,698.74. The Standard & Poor 500 (S&P 500) went up 0.5% to finish at 1,920.03. The tech-laden Nasdaq Composite Index too rose 0.5% to 4,247.95. The fear-gauge CBOE Volatility Index (VIX) dropped 0.9% to settle at 11.57. Total volume for the day was roughly 4.88 billion shares, lower than this month’s average of 5.78 billion. Advancers outpaced declining stocks on the NYSE. For 65% stocks that advanced, 32% declined.
First quarter GDP growth was lower than expected. According to the “second estimate” by the Bureau of Economic Analysis, the first quarter output of goods and services produced by labor and property located in the United States decreased at an annual rate of 1.0%, more than the consensus estimate of a decrease by 0.5%. This decline in first quarter GDP was in sharp contrast to the “advance” estimate that predicted an increase of 0.1%. The US economy shrank in the first quarter for the first time in three years. Harsh winter weather was cited for hampering business operations and slowing down construction. In the fourth quarter, the US economy had expanded 2.6%.
However, investors overlooked dismal GDP data. Investor sentiment turned bullish following news of a drop in claims for unemployment benefits. The U.S Department of Labor reported that seasonally adjusted initial claims decreased 27,000 to 300,000 during the week ending May 24. The number of people applying for unemployment benefits last week touched the second-lowest level since the end of recession in mid-2009.
Separately, the National Association of Realtors reported that Pending Home Sales Index, a forward looking indicator based on contract signings, moved up 0.4% to 97.8 in April. However, this was below the consensus estimate of a 1.0% increase.
A new deal between The Hillshire Brands Company (NYSE:HSH) and Tyson Foods, Inc. (NYSE:TSN) also lifted investor sentiment. Shares of Hillshire Brands surged 18.0% after Tyson Foods made an offer to buy the maker of Jimmy Dean sausage for $6.8 billion or $50 per share in cash. Shares of Tyson Foods also increased 6.1%, making it the biggest gainer in the S&P 500.
Tyson Foods’ offer to buy Hillshire Brands was more than the offer made by Pilgrim's Pride Corporation (NASDAQ:PPC) on Tuesday. Pilgrim's Pride agreed to buy Hillshire in an all-cash deal valued at $6.4 billion or $45 per share.
Following the news, shares of food companies such as The J. M. Smucker Company (NYSE:SJM) and Hormel Foods Corporation (NYSE:HRL) advanced 2.4% and 2.1%, respectively.
All the 10 sectors of the S&P 500 ended in the green. The Materials Select Sector SPDR (XLB) led the advance among the S&P 500 sectors, gaining 1.0%. Top holdings from the sector such as E. I. du Pont de Nemours and Company (NYSE:DD), The Dow Chemical Company (NYSE:DOW), Monsanto Company (NYSE:MON), LyondellBasell Industries NV (NYSE:LYB) and Praxair Inc. (NYSE:PX) increased 0.8%, 1.4%, 1.1%, 1.4% and 1.8%, respectively.
The Energy Select Sector SPDR (XLE) advanced 0.9%. Key stocks from the sector such as Exxon Mobil Corporation (NYSE:XOM), Schlumberger Limited (NYSE:SLB), Occidental Petroleum Corporation (NYSE:OXY), EOG Resources, Inc. (NYSE:EOG) and Halliburton Company (NYSE:HAL) gained 0.2%, 1.9%, 0.8%, 1.4% and 0.9%, respectively.