Encouraging factory orders data and strong domestic auto sales boosted investor confidence on Tuesday. Improving payment rates in the healthcare sector added to the bullish mood. Investors also derived optimism from a conclusion to the Cyprus deal. Among the top ten S&P 500 industry groups, healthcare stocks gained the most while materials stocks were the biggest losers.
The Dow Jones Industrial Average (DJI) gained 0.6% to close the day at 14,662.01. The S&P 500 increased 0.5% to finish yesterday’s trading session at 1,570.25. The tech-laden Nasdaq Composite Index gained 0.5% to end at 3,254.86. The fear-gauge CBOE Volatility Index (VIX) dropped almost 5.9% to settle at 12.78. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 5.9 billion shares, below 2012’s average of 6.48 billion shares. Declining stocks outnumbered the advancers. For the 47% that advanced, 49% declined.
Since the beginning of this year, economic data has been mostly positive indicating an improving economy. Riding on positive domestic data, the Dow Jones and the S&P 500 neared all-time highs. The Dow Jones increased as much as 111 points in intra-day trade while the S&P 500 was just 2.4 points shy of its all-time high. The S&P 500 has gained 10.3% this year.
Strong factory orders data boosted investor confidence yesterday. According to the U.S. Department of Commerce, in February, new orders for manufactured goods increased 3% above the consensus estimate of 2.2%. This data follows a decrease of 1% in January. This is the highest level attained on NAICS (North American Industry Classification System) basis since 1992. Factory orders have gone up for two out of the previous three months. Shipments increased 0.9% while inventories data was up marginally, by 0.2%.
Meanwhile, sales of domestic vehicles remained flat. In March, sales of domestic vehicles were reported at 12.1 million, marginally higher than consensus estimate of 12 million. Although vehicle sales are not a major factor when it comes to changes in retail sales, it constitutes about 20% of the retail sales data.
The U.S. government said that it would increase payment rates by 3.3% in 2014 for health insurers that provide coverage through the Medicare Advantage program. This decision follows an announcement in February that a payment cut of 2.3% would be made. Currently, almost 14 million Americans are a part of this program. Following these developments, investors turned bullish towards the healthcare sector. The sector has gained almost 16% this year.
On the international front, investors received a boost after the conclusion of the Cyprus bailout deal. According to the deal, Cyprus will receive a 10 billion Euro loan along with a time period of 5 years to improve its financial situation. According to data released by the European Union, the unemployment rate in the Euro Zone has increased to 12.0% from 11.9% in January. In terms of numbers, about 19 million people are jobless in the Euro Zone. Month over month, the number of unemployed people has increased by 1.8 million.
Among the top ten S&P 500 industry groups, healthcare stocks performed the best. The Health Care SPDR (XLV) gained 1.5%. Stocks such as Johnson & Johnson (NYSE:JNJ), Pfizer Inc. (NYSE:PFE), Abbott Laboratories (NYSE:ABT), Amgen, Inc. (NASDAQ:AMGN) and Gilead Sciences, Inc. (NASDAQ:GILD) gained 0.9, 1.4%, 2.3%, 4.0% and 0.5%, respectively.
Materials stocks suffered the most. The Materials Select Sector SPDR (XLB) lost 1.0%. Stocks such as Monsanto Company (NYSE:MON), the Dow Chemical Company (NYSE:DOW), Praxair, Inc. (NYSE:PX), Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) and PPG Industries, Inc. (NYSE:PPG) declined 1.7%, 1.3%, 0.1%, 1.4% and 0.4%, respectively.