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Stock Market News For May 31, 2018

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Wall Street rallied strongly on Wednesday reversing previous day’s losses. All three major indexes ended in the green driven by a sharp rise in oil prices resulting in significant gain for energy giants. Moreover, major banks also recovered from the previous day’s drop on expectations of a rate hike in June.

The Dow Jones Industrial Average (DJI) closed at 24,667.78, increasing 1.3% or 306.33 points. The S&P 500 Index (INX) also rose 1.3% to close at 2,724.01. The Nasdaq Composite Index (IXIC) closed at 7,462.45, gaining 0.9%. A total of 6.83 billion shares were traded on Wednesday, higher than the last 20-session average of 6.59 billion shares. Advancers outnumbered decliners on the NYSE by 4.05 -to-1 ratio. On the Nasdaq, advancers had an edge over decliners by 2.13 to -1 ratio.  The CBOE VIX declined 12.2% to close at 14.94.

How Did the Benchmarks Perform?

The Dow rose 1.3% marking its first gain after declining over three successive days. Notably, 27 of the 30-stocks in the blue-chip index closed in the green while three traded in the red. However, Wednesday’s sharp gain was not enough to pull the blue-chip index out of the negative territory year to date.

The S&P 500 increased 1.3%, also reversing the negative trend of three straight trading days. This was led by 3.1% jump of the Energy Select Sector SPDR (XLE), 1.9% increase in Financials Select Sector SPDR (XLF) and 1.5% gain in Healthcare Select Sector SPDR (XLV). Notably, all 11 sectors of the benchmark index ended in positive territory.

The Nasdaq Composite rose 0.9% due to solid performance by large tech stocks.

Energy Stocks Rally on Oil Price Rebound

After five trading days, oil prices surged on Wednesday following a report by Reuters that Saudi Arabia, other OPEC (Oil and Petroleum Exporting Countries) states, and non-OPEC allies led by Russia are likely to abide by a global pact on capping oil production until the end of 2018. However, oil producers will make gradual adjustments in the event of any supply disturbance.

Consequently, West Texas Intermediate (WTI) crude gained $1.48 or 2.2%, to settle at $68.21 a barrel. Likewise, Brent crude was up $2.11 or 2.8%, to end at $77.50 a barrel on ICE Futures Europe.

Consequently, share prices of oil behemoths Exxon Mobil Corp. (XOM - Free Report) and Chevron Corp. (CVX - Free Report) jumped 3.9% and 3.1%, respectively. Both Exxon and Chevron carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bank Stocks Gain On Rate Hike Expectations

Banking stocks recovered from their Tuesday’s loss as Italian credit concerns ebbed. On Wednesday, Italian two-year bond yields fell to 1.72% from 2.1% on the previous day. As Eurozone fears dissipated, investors shifted their focus from traditional safe havens like U.S. debt to international debt instruments, raising the yield of U.S. 10-year Treasury Note to 2.84% from 2.77% at yesterday’s close.

Rise in interest rate bodes well for banking stocks. Furthermore, the Fed, in its latest Beige Book, stated that the U.S. economy expanded “moderately” from late April to early May. This increases the likelihood of a rate hike next month. Consequently, banking stocks recovered a part of Tuesday’s losses.

Major banks like JPMorgan Chess & Co. (JPM - Free Report) and The Goldman Sachs Group Inc. (GS - Free Report) gained 2.3% and 1.3%, respectively.

Economic Data

In its second estimate, the Commerce Department reported that the U.S. gross domestic product (GDP) increased 2.2% in the first quarter of 2018, lowering its initial estimate of 2.3%.

The consensus estimate was also 2.3%. The report also stated that the after-tax corporate profits jumped at 5.9% in the first-quarter 2018 compared with just 1.7% rise in the fourth-quarter 2017. This was the fastest pace of growth in profits since the first quarter of 2016 following massive tax cut by the Trump administration.

Growth in consumer spending, which accounts for nearly 70% of U.S. economic activity, dropped to 1% in the first quarter from the initial estimate of 1.1%. Inventories increased at a $20.2 billion rate in the first quarter, rather than the previous estimate of $33.1 billion. Meanwhile, business spending on equipment was revised up to 5.5% in the January-March period from the 4.7% estimated initially.

Meanwhile, the U.S. Census Bureau reported that the U.S. trade gap in goods (excluding services) for the month of April fell 0.6% to $68.2 billion from $68.6 in March. Exports of goods for April were $139.6 billion, $0.7 billion less than March exports. Imports of goods for April were $207.8 billion, $1.1 billion less than March imports.

Stock That Made Headline

PVH Corp. Retains Earnings Beat Trend in Q1, Ups View

PVH Corp. (PVH - Free Report) reported better-than-expected earnings and sales in first-quarter fiscal 2018. (Read More)

ExxonMobil Chalks Out Plans to More Than Double Earnings

In its annual meeting, ExxonMobil Corp. (XOM - Free Report) announced its intention to increase earnings by more than two-fold by 2025 and address the risks of climate change. (Read More)

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