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Stock Market News for July 18, 2012

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Encouraging quarterly results combined with fresh hopes of economic stimulus measures to lift the benchmarks into the green on Tuesday. Fed chairman Ben Bernanke was critical about the state of the economic recovery which also threatens the employment situation. Benchmarks slipped into negative territory in the morning session following the absence of signals about further monetary measures. However, as market sentiment turned hopeful about such measures in the near future, benchmarks rebounded into the green. In the process, the Dow recorded its best resurgence from the red zone in over five months. 

The Dow Jones Industrial Average (DJI) gained 0.6% and closed at 12,805.54. The Standard & Poor 500 (S&P 500) jumped 0.7% and finished yesterday’s trading session at 1,363.67. The tech-laden Nasdaq Composite Index was up 0.5% and ended at 2,910.04. The fear-gauge CBOE Volatility Index dropped 3.7% and settled at 16.48. Consolidated volumes on the New York Stock Exchange, Nasdaq and American Stock Exchange were roughly 6.31 billion shares, slightly higher than the year-to-date daily average of 6.22 billion shares. The advancers outpaced the decliners on the NYSE; as for 65% of gainers, 31% stocks moved lower.

Investors’ hopes for a third round of asset purchases have been dashed every time. The latest Fed minutes also failed to suggest any definite sign of the third quantitative easing (QE3). Federal Reserve Chairman Ben Bernanke painted an extremely grim picture of the financial conditions. Moreover, he did not state anything specific about QE3. Amidst economic weakness, Bernanke also sounded apprehensive about the budget impasse and was concerned about its impact on the economy if the Congress failed to reach an agreement. The labor market is a serious concern and Bernanke noted that the pace of decline in unemployment rate remains “frustratingly slow”.

With such concerns and a grim outlook, benchmarks moved into the negative zone. Further, Bernanke remained elusive about QE3. He did mention central banks considering a range of tools but did not close anything in particular. However, it is generally believed that the Fed will have to announce fresh monetary measures in the near future. Market strategists believed that economic weakness might compel the central bank to take such a step. In the words of the managing director of active trading and derivatives at Charles Schwab, “We know they (Federal Reserve) will. The question is how bad do things have to deteriorate before they act”.

Thus, fresh hopes of QE3 once again lifted investor’ sentiment which was reflected in a market rebound. Also helping the markets finish on a winning note were encouraging earnings results from The Coca-Cola Company (NYSE:KO), Mattel, Inc. (NASDAQ:MAT) and financial heavy weight The Goldman Sachs Group, Inc. (NYSE:GS). While Coco-Cola gained 1.6%, toymaker Mattel’s shares surged a significant 9.7% after second quarter 2012 earnings estimates.

Goldman Sachs joined Citigroup, Inc. (NYSE:C) and JPMorgan Chase & Co. (NYSE:JPM) on the list of companies which bettered earnings estimates, despite flagging global economic conditions. However, Goldman Sachs’ revenues were short of expectations and the company’s shares managed to move up 0.3%.

Coming to the sector-wise performances, materials had a good day with Materials Select Sector SPDR (XLB) gaining 1.3%. Among the stocks, Mosaic Co (NYSE:MOS), PPG Industries, Inc. (NYSE:PPG), E I Du Pont De Nemours And Co (NYSE:DD) and Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) gaining 5.1%, 2.0%, 1.6% and 0.4%, respectively.

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