Benchmarks finished slightly higher following positive data on the domestic front, offsetting the negative impact of discouraging international data and spending cuts. Budgetary cuts were implemented on Friday after Democrats and Republicans failed to reach an agreement on curbing spending. Among the top ten S&P 500 groups, health care stocks emerged as the biggest gainers, while industrials were the only losers.
The Dow Jones Industrial Average (DJI) gained 0.3% to close the day at 14,089.66. The S&P 500 increased 0.2% to finish Friday’s trading session at 1,518.20. The tech-laden Nasdaq Composite Index rose 0.3% to end at 3,169.74. The fear-gauge CBOE Volatility Index (VIX) dropped almost 1.0% to settle at 15.36. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.72 billion shares, above the daily average of 6.48 billion shares. Advancing stocks outnumbered the declining stocks. For the 52% that advanced, 44% declined.
The Dow Jones gained 0.6%, S&P 500 edged up 0.2% and the Nasdaq added 0.3% over the week. Markets were very volatile in the previous week owing to uncertainty over the Italian elections and a debate over whether or not the $85-billion bond buying program should be continued. Democrats and Republicans could not reach common ground on the issue. As a result, the government decided to implement budget cuts of $1.2 trillion over nine years and $85 billion over a seven month period in this fiscal year.
President Barack Obama held Republicans responsible for not reaching common ground over the spending cuts issue. He also said: “It's just dumb. And it's going to hurt. It's going to hurt individual people and it's going to hurt the economy overall.”
The major indices started Friday’s trading session in the red following discouraging numbers from Europe and China. Factory output in Europe declined for the 19th consecutive month. The Eurozone manufacturing index was at 47.9 while the index in Germany was at 50.3. Spain, Italy and France were the worst hit at 46.8, 45.8 and 43.9, respectively. Moreover, unemployment levels in Europe also increased to 11.9% in January. Among the Eurozone economies, unemployment in Italy is at the highest level in 21 years at 39%. Meanwhile, China reported manufacturing numbers for February. According to the official purchasing managers' index survey, the manufacturing index decreased to 50.1 from 50.4 in January.
On the domestic front, encouraging manufacturing numbers improved investor sentiment and helped benchmarks to offset Friday’s early losses. According to the Institute for Supply Management, the manufacturing index increased to 54.2 beating the consensus estimate of 52.6 and January’s figure of 53.1. This index has increased for the third month in a row and is at highest level since June 2011.The New Orders Index has increased 4.5% to 57.8 from January’s figure of 53.3. All the five components of the Purchasing Manager’s Index, which includes new orders, production, employment, supplier deliveries and inventories, registered growth for February.
Shares of a retail major, The Gap Inc. (NYSE:GPS) surged 2.9% after registering better-than-expected earnings for the fiscal fourth-quarter. The company registered its best holiday season sales in the past six years. Shares of electronic retail giant, Best Buy Co., Inc. (NYSE:BBY) gained about 4.6% as the company reported adjusted earnings better than the Street’s expectations.
Health care stocks were the biggest gainers among the S&P 500 top ten industry groups. The Health Care SPDR (XLV) gained 0.8%. Stock such as Johnson & Johnson (NYSE:JNJ), Pfizer Inc. (NYSE:PFE), Amgen, Inc. (NASDAQ:AMGN), Gilead Sciences, Inc. (NASDAQ:GILD) and Medtronic, Inc. (NYSE:MDT) increased 0.8%, 0.1%, 1.1%, 1.7% and 0.6%, respectively.
Industrial stocks were the only losers. The Industrial Select Sector SPDR (XLI) dropped 0.2%. Stocks such as General Electric Company (NYSE:GE), United Technologies Corporation (NYSE:UTX), 3M Co (NYSE:MMM), Caterpillar Inc. (NYSE:CAT) and Honeywell International Inc. (NYSE:HON) decreased 0.1%, 0.5%, 0.2%, 1.1% and 0.1%, respectively.