Benchmarks chalked up further gains on the back of investor optimism. Meanwhile, the Dow Jones and the S&P 500 reached all-time highs following a series of encouraging economic reports this week. Among the top ten S&P 500 industry groups, materials stocks emerged as the biggest gainers while utilities were the only losers.
The Dow Jones Industrial Average (:DJI) increased 0.3% to close the day at 15,105.12. The S&P 500 gained 0.4% to finish yesterday’s trading session at 1,632.69. The tech-laden Nasdaq Composite Index rose 0.4% to end at 3,413.27. The fear-gauge CBOE Volatility Index (:VIX) decreased 1.3% to settle at 12.66. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.2 billion shares, marginally below 2013’s average of 6.36 billion shares. Advancing stocks outnumbered the decliners. For the 66% that advanced, 30% declined.
The Dow progressed from yesterday’s record close, chalking up gains for the second consecutive day while the S&P 500 advanced for the fifth day in a row. The Dow, the S&P 500 and the Nasdaq have gained 14.5%, 15.3% and 13% respectively this year. Better-than-expected payroll data, which was released last week, acted as a catalyst for benchmarks. Additionally, encouraging German factory output data along with positive export and import data from China, released recently, delivered a boost to investor sentiment.
Last week, the Federal Reserve had decided to continue ongoing monetary stimulus until inflation declines to 2.0% and the unemployment rate touches 6.5%. The unemployment rate is gradually decreasing as the economy gathers steam. However, Personal Consumption Expenditure (:PCE) price index is 1%, the lowest level in more than three years. Moreover, according to the Fed, the inflation rate is likely to stay below the Central Bank’s expectation for years.
Inflation in an economy is measured by two indices Consumer Price Index (CPI) and PCE. Currently, PCE is at 1.0% while the CPI is 1.5%. This is the biggest gap in the past ten years. For now, the Fed has decided to continue with its monetary easing program but this gap remains a cause of concern to members of the Fed.
According to the Economy Ministry in Berlin, industrial production increased by 1.2% from the previous month’s figure in March. This data indicates an increase in industrial output for the second month in a row and above market estimates of -0.1%. German’s manufacturing output rose 1.4% while energy production surged 4% for the month. Production of investment goods surged 2.1% whereas construction activity declined 3.1%. Then decline in construction activity is attributable to cold weather. This data came in a day after Germany reported an unexpected increase in international and domestic factory orders.
Services and manufacturing output decreased for the 15th consecutive month in April while retail sales dropped in March. The European Central Bank (:ECB) expects the Euro Zone economy to contract by 0.4% this year compared to a contraction of 0.6% in 2012. ECB president, Mario Draghi, indicated a further rate cut if the economy worsens. While the Euro Zone economy may be facing tough times, the German economy is showing signs of gradual revival.
On the earnings front, shares of Monster Beverage Corp (NASDAQ:MNST) dropped 0.3% after its earnings missed the Street’s estimates. However, the company’s sales increased. The company said the decrease in earnings is because of legal expenses and allegations that it markets highly caffeinated drinks to children.
Of the top ten S&P 500 industry groups, utilities stocks gained the most. The Materials Select Sector SPDR (XLB) gained 0.9%. Stocks such as Monsanto Company (NYSE:MON), FMC Corp (NYSE:FMC), E I Du Pont De Nemours And Co (NYSE:DD), Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) and PPG Industries, Inc. (NYSE:PPG) gained 0.9%, 1.9%, 0.1%, 2.7 and 1.7%, respectively.
Utilities stocks were the only losers. The Utilities SPDR (XLU) lost 0.9%. Stocks such as Duke Energy Corp (NYSE:DUK), Dominion Resources, Inc. (NYSE:D), Xcel Energy Inc. (NYSE:XEL), American Electric Power Company, Inc. (NYSE:AEP) and PPL Corporation (NYSE:PPL) decreased 1.1%, 0.7%, 1.0%, 0.9% and 1.3%, respectively.
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