Benchmarks ended in the red on Monday after Federal Vice Chairman Stanley Fischer’s comments on Saturday left possibilities of September rate hike wide open. Meanwhile, benchmarks posted record monthly losses as investors grappled with economic slowdown in China and the prospect of rate hike. All the 10 sectors of the S&P 500 ended in the red for the month, while the healthcare sector declined the most, down 8%.
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The Dow Jones Industrial Average (DJI) declined 0.7% to close at 16,528.03. The Standard & Poor’s 500 (S&P 500) dropped 0.8% to end the day at 1,972.18. The tech-laden Nasdaq Composite Index closed at 4,776.51, decreasing 1.1%. The fear-gauge CBOE Volatility Index (VIX) gained 9.1% to settle at 28.43. A total of about 7.8 billion shares were traded on Monday, lower than the last five trading sessions average of 10.7 billion. Declining stocks easily outpaced advancers on the NYSE. For 55% stocks that declined, 42% advanced.
Benchmarks ended lower on Monday after Federal Vice Chairman Stanley Fischer said during the weekend that inflation in U.S. is likely to rebound as pressure from dollar subsides. This in turn will allow the Fed to hike rates gradually. He added: “Because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening.” This follows Fischer’s comments on Friday, when he said that a September rate hike was “pretty strong” before China devalued its currency.
His comments raised the level of uncertainty among investors, as they believe the central bank could look past the recent turmoil in global financial markets while deciding on raising interest rates. An almost zero level interest rate since the financial crisis boosted markets.
Monday’s losses were broad based, with 8 out of 10 sectors ending in the red. The Health Care Select Sector SPDR ETF (XLV) dropped 1.8% and was the biggest decliner among the S&P 500 sectors. Key stocks from the sector including Johnson & Johnson (JNJ - Free Report) , Pfizer Inc. (PFE - Free Report) , Gilead Sciences Inc. (GILD - Free Report) and Allergan plc (AGN - Free Report) decreased 1.3%, 1.4%, 2.5% and 1.4%, respectively.
On the other hand, the Energy Select Sector SPDR (XLE) gained 1%, the highest among the S&P 500 sectors. Energy shares were able to buck the declining trend, banking on rise in oil prices. Oil prices moved north on Monday after data projected decline in U.S. oil production levels. Further, Organization of Petroleum Exporting Countries’ intention to talk to other oil producers regarding the recent slump in oil prices boosted global oil prices. Price of WTI crude oil soared $3.98 or 8.1% to $49.20 per barrel on Monday. Brent crude surged $4.10 or 7.6% to $54.15 per barrel.
Dow components Exxon Mobil Corporation (XOM - Free Report) and Chevron Corporation (CVX - Free Report) advanced 0.2% and 0.7%, respectively. Other key stocks from the energy sector including Schlumberger Limited (SLB - Free Report) , ConocoPhillips (COP - Free Report) and Transocean Ltd (RIG - Free Report) increased 2.4%, 4.9% and 4.7%, respectively.
In economic news, the Supply Management-Chicago noted that Chicago Business Barometer went down to 54.4 in August from July’s reading of 54.7. This decrease in the Chicago Purchasing Managers Index in August came in line with the Zacks Consensus Estimate.
For the month, the S&P 500, the Dow and the Nasdaq plunged 6.3%, 6.6% and 6.9%, respectively. While the Dow notched up its biggest monthly decline in more than five years, the S&P 500 and the Nasdaq registered their steepest monthly losses since May 2012. All the major indexes moved in and out of their correction territory to end a volatile month in the red.
Benchmarks slumped for the month on concerns that a weak Chinese economy would result in a global slowdown. Benchmarks also closed in the red, following the yuan’s devaluation. Uncertainty about the timing of a Fed rate hike was another major cause of downfall. Minutes of the Federal Open Market Committee meeting held on July revealed that the majority of policymakers “judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point.”
Meanwhile, continuous slump in oil prices dented investor sentiment. However, oil prices spiked during the last three trading days of the month. A steep decline in TV-subscribers weighed on the earnings results of major media companies including Viacom, Inc. (VIAB - Free Report) . Separately, disappointing quarterly performance of The Walt Disney Company (DIS - Free Report) and Wal-Mart Stores Inc. (WMT - Free Report) weighed on the blue-chip index.
Among the positives, GDP data came in better-than-expected. Second quarter GDP gained momentum, boosted by improved consumer spending.