Investor optimism remained high on Wednesday following upbeat corporate earnings and expectations that the Federal Reserve’s monetary stimulus will continue. A couple of discouraging domestic reports failed to dampen investor enthusiasm. Meanwhile, gross domestic product (GDP) of Japan grew unexpectedly while the Euro Zone slipped further into recession. Nine out of the top ten S&P 500 industry groups finished in the green, with consumer staples leading the pack. Energy stocks emerged as the only losers.
The Dow Jones Industrial Average (:DJI) gained 0.4% to close the day at 15,275.69. The S&P 500 gained 0.5% points to finish yesterday’s trading session at 1,658.78. The tech-laden Nasdaq Composite Index rose 0.3% to end at 3,475.78. The fear-gauge CBOE Volatility Index (:VIX) increased 0.3% to settle at 12.81. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.6 billion shares, marginally above 2013’s average of 6.36 billion shares. Advancing stocks outnumbered the decliners. For the 54% that advanced, 43% declined.
Major indices shrugged off discouraging numbers on industrial production and the producer price index (:PPI), reached record highs during yesterday’s trading session. According to data released by the Federal Reserve, industrial production of the country contracted in April after two successive expansions in February and March. In April, industrial production registered a decline of 0.5% compared to the consensus estimate of a decline of 0.1%. This was also below the February and March numbers of 0.9% and 0.3%, respectively. Manufacturing output decreased further, by 0.4%, compared to previous month’s decline of 0.3%. Index for utilities slipped 3.7% while output for mines inched up 0.9%. However, on a year over year basis, industrial production increased 1.9%.
According to the U.S. Department of Labor, PPI for finished goods declined 0.7% in April compared to the consensus estimate of a decline of 0.6%. The index had decreased by 0.7% In February and by 0.6% in March. Among the finished goods category, price index for foods decreased 0.8% while price index for energy declined 2.5%. This is lower than year ago figures of a decline of 0.1% and 1.1%, respectively.
According to the Federal Reserve Bank of New York, the Empire State manufacturing survey, which measures general business conditions, dropped below zero to a -1.4, below the consensus estimate of 4.0. The new orders index declined marginally, slipping into the red while the shipments index was recorded at zero. Owing to the weakness in selling prices, the prices paid index came in at 20.5, down 8 points. However, the prices received index changed marginally to 4.6.
On the international front, Japan’s GDP, for the first quarter, rose 0.9% from the previous quarter compared to estimates of 0.7%. On an annualized basis growth came in at 3.5%. Growth in Japan’s GDP is attributable to an increase in exports and private consumption. Monetary and fiscal stimulus boosted the increase in private consumption and exports. Personal consumption, which forms 60% of Japan’s economy, increased 0.9% while net exports contributed 0.4%. However, capital expenditure in Japan declined 0.7% compared to estimates of an increase of 0.7%.
Meanwhile, the Euro Zone slipped into recession with GDP growth declining by 0.2%. Germany managed to avoid such a fate, but could not prevent the entire region from slipping into recession. Germany’s GDP, which accounts for 30% of the Euro Zone’s output, grew 0.1% compared to estimates of 0.3%. GDP of Euro Zone’s second biggest economy, France decreased 0.2%. A decline in investment activity and exports is responsible for France’s low GDP. Portugal’s GDP slipped only 0.3% compared to previous quarter’s decrease of 1.8%.
Of the top ten S&P 500 industry groups, consumer staples stocks gained the most. The Consumer Staples Select Sect. SPDR (XLP) increased 1.0%. Stocks such as the Procter & Gamble Company (NYSE:PG), the Coca-Cola Company (NYSE:KO), Philip Morris International Inc. (NYSE:PM), Wal-Mart Stores, Inc. (NYSE:WMT) and CVS Caremark Corporation (NYSE:CVS) increased 1.5%, 0.9%, 1.4%, 1.4% and 0.5%, respectively.
Energy stocks were the only losers. The Energy Select Sector SPDR (XLE) lost 0.3%. Stocks such as Chevron Corporation (NYSE:CVX), Hess Corp. (NYSE:HES), Occidental Petroleum Corporation (NYSE:OXY), ConocoPhillips (NYSE:COP) and Anadarko Petroleum Corporation (NYSE:APC) decreased 0.8%, 2.2%, 0.1%, 1.0% and 0.8%, respectively.
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