Benchmarks finished in the green on Friday after Fed Chairwoman Janet Yellen said a rate rise might be appropriate in coming months. Increasing rate hike chances boosted financials stocks, which had a broader positive impact on key U.S. indexes. For the week, the Dow, S&P 500 and Nasdaq registered best weekly gains since Mar 18, Mar 4 and Feb 19, respectively. Meanwhile, markets were closed on Monday for the Memorial Day Holiday.
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The Dow Jones Industrial Average (DJI) increased 0.3%, to close at 17,873.22. The S&P 500 rose 0.4% to close at 2,099.06. The tech-laden Nasdaq Composite Index closed at 4,933.51, gaining 0.7%. The fear-gauge CBOE Volatility Index (VIX) decreased 2.3% to settle at 13.12. A total of around 5.6 billion shares were traded on Friday, significantly lower than the last 20-session average of 7.1 billion shares. Advancers outpaced declining stocks on the NYSE. For 65% stocks that advanced, 32% declined.
Fed Chairwoman Janet Yellen’s comments on Friday at an awards ceremony at Harvard University raised rate hike chances. Yellen said "it's appropriate” to increase interest rates “gradually and cautiously” in the near future. She also said that “such a move”, possibly over the “coming months”, might be “appropriate."
Further, Yellen highlighted that after a weak first quarter, the economy had experienced considerable growth and the dollar and oil prices are "roughly stabilizing." However, she maintained a cautious tone regarding the pace of rate hikes and said that if the Fed “were to raise interest rates too steeply” and “were to contribute to a downturn,” then it would have “limited scope for responding.”
Increasing rate hike chances in June continued to boost the Financial Select Sector SPDR (XLF), which rose 0.7% and was biggest gainer among the S&P 500 sectors. Top holdings from this sector such as Bank of America Corporation (BAC), Wells Fargo & Company (WFC) and Citigroup Inc. (C) rose 1.2%, 0.6% and 1%, respectively. Dow components JPMorgan Chase & Co (JPM) and Goldman Sachs Group, Inc. (GS) increased 0.6% and 0.2%, respectively. The Financial Services Select Sector SPDR (XLFS) also increased 0.7%.
In earnings news, ULTA Salon, Cosmetics & Fragrance, Inc’s (ULTA) shares jumped 9.1% after its fiscal first quarter earnings of $1.45 per share surpassed the Zacks Consensus Estimate of $1.29 and rose 39.4% year-over-year. Its revenues of $1.073.7 billion also beat the Zacks Consensus Estimate of $1.027 billion and increased 23.7% year-over-year. ULTA posted its highest percentage rise ever and was the biggest advancer among the S&P 500 companies.
In economic news, the “second” estimate by the Bureau of Economic Analysis showed that first quarter output of goods and services increased at an annual rate of 0.8%, lower than the consensus estimate of 0.9% increase. However, first-quarter GDP data was revised upward from the previously estimated 0.5% rise.
Meanwhile, the final reading of consumer sentiment index released by University of Michigan came in at 94.7 in May, reaching it’s the highest settlement in 11 months. It was lower than the consensus estimate of 95.3, but was higher than the April’s reading of 89.
For the week, the Dow, S&P 500 and Nasdaq rose 2.1%, 2.3% and 3.4%, respectively, following gains in financial services and technology sector. Investors came in terms with an immediate rate hike possibilities following speculations that a rate hike may indicate steady economic growth. Rising rate hike chances boosted financials stocks and eventually had a broad-based positive impact on tech stocks.
Fed officials’ comments raised rate hike possibilities, which in turn had a positive impact on financials stocks. The Financial Services Select Sector SPDR (XLFS) and Financials Select Sector SPDR (XLF) rose 3% and 2.6%, respectively.
Moreover, oil prices crossed the $50 a barrel mark during the week, which also pushed the key U.S. indexes upward. Baker Hughes Inc. (BHI) reported a decline in U.S. rig counts from 318 to 316 for the week ending May 27. Recent production disruptions in Libya, Canada and Nigeria and decline in U.S. commercial crude inventories and rig counts helped Brent and WTI crude to increase 1.2% and 1.9%, respectively, posting their third straight weekly rise.
Economic reports were also encouraging with new home sales posting its highest monthly percentage rise in 24 years. Also, pending Home Sales Index, durable orders and mortgage application volume increased and initial claims decreased.
In company news, Monsanto Company’s (MON) shares advanced on news that Bayer AG (BAYRY) has offered $62 billion or $122 per share to acquire Monsanto. Additionally, shares of Toll Brothers Inc. (TOL) and Dollar Tree, Inc’s (DLTR) increased following better-than-expected earnings results.
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