Markets ended in the green on Friday as news of Russia terminating its military exercise near its border with Ukraine offset concerns about U.S airstrikes over Iraq. The Dow registered its largest gain in last 4 months on Friday. Friday's gains helped erode all of the week's losses as geopolitical tensions and rate hike fears offset upbeat economic and earnings results.
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The Dow Jones Industrial Average (DJI) rose 1.1%, or 185.66 points, to close at 16,553.93. The Standard & Poor 500 (S&P 500) increased 1.2% to close at 1,931.59. The tech-laden Nasdaq Composite Index closed at 4,370.90; rising 0.8%. The fear-gauge CBOE Volatility Index (VIX) declined 5.3% to settle at 15.77. A total of 2.9 billion shares were traded in NYSE on Friday. Advancers outpaced declining stocks on the NYSE. For 74% stocks that advanced, 24% declined.
On Friday, Russia's Defence Ministry announced that it had completed military exercises along the border of Ukraine in southern Russia. This indicated that the possibility of a Russian invasion has diminished for the present. However, Valery Chaly, deputy head of Ukraine's administration, said that a Russian military convoy was advancing along its border under agreement with the Red Cross on Friday. But after Kiev's appeal to Russia, the convoy stopped advancing. Moscow declined the accusation and stated the allegation as "fairy tale". Investors felt less jittery as the threat of a Russian invasion receded.
Meanwhile, the U.S. launched airstrikes on the Islamic State in Iraq and Syria (ISIS) for the first time since 2011. President Barrack Obama had announced a day earlier that US will launch airstrikes to protect the minorities. On Thursday, Washington had also announced plans to airdrop food and medicine for around 40,000 religious minorities, struggling to survive extreme conditions on top of Mount Sinjar.
In company news, Shares of The Gap, Inc. ( GPS ) jumped 5.9% on impressive July sales results. Gap's net sales in Jul 2014 witnessed a year-over-year increase of 5% and reached $1.17 billion. Comparable-store sales (comps) for the month improved 2% as against a rise of 1% registered in July last year.
NVIDIA Corporation ( NVDA ) reported second-quarter fiscal 2015 adjusted earnings per share on a proportionate tax basis of 25 cents, beating the Zacks Consensus Estimate of 19 cents. On a year-over-year basis, adjusted earnings increased 39.9% on higher revenue base and an encouraging operating performance. Shares of NVIDIA gained 8.8%.
On the economic front, the U.S. Labor department reported that nonfarm business sector labor productivity rose 2.5% at annual rate in the second quarter, higher than the consensus estimate of 1.3%. It also reported that the average working hours and output increased 2.7% and 5.2%, respectively.
The SPDR S&P Homebuilders (XHB) was the biggest gainer among the S&P 500 sectors. The sector gained 2.5%. Key homebuilders stocks from the sector such as PulteGroup, Inc. ( PHM ), Toll Brothers Inc. ( TOL ), DR Horton Inc. ( DHI ) and Lennar Corp. ( LEN ) increased 3%, 2.7%, 2.5% and 1.9%, respectively. All the S&P 500 sectors gained on Friday.
Over the week, the Dow Jones S&P 500 and the tech-laden Nasdaq Composite Index rose 0.4%, 0.3% and 0.4%, respectively. During the week, investors remained concerned about Russia's military build up along the eastern border of Ukraine. Moreover, Moscow responded aggressively to Western sanctions by imposing bans on import of fruits and vegetables from Europe. It also announced restrictions on all food imports from U.S. Tensions in Iraq also dented sentiments as the U.S. announced airstrikes against ISIS and airdrop of medicine and food for minorities.
Failure of two high profile merger deals including Sprint Corporation ( S ) and T-Mobile U.S. Inc. ( TMUS ), and Time Warner Inc. ( TWX ) and Twenty-First Century Fox, Inc. ( FOXA ) also dragged down the markets on Wednesday. Concerns over discouraging growth numbers in major European economies also impacted the markets negatively.
However, the week witnessed robust earnings results from companies including Time Warner, Twenty-First Century Fox, Molson Coors Brewing Company ( TAP ), Coach, Inc. ( COH ) and Toyota Motor Corporation ( TM ). According to FactSet Research Systems Inc. ( FDS ), 446 companies out of S&P 500 reported earnings growth of 8.4%, higher than the anticipation of 4.9%. Revenue growth also increased 4.3%.
Markets were also boosted by a recovery plan for Portugal's banking crisis. Per the plan the central bank announced it was splitting BES into a "good bank" and a "bad bank". The 'good bank' would receive a bailout of €4.9 billion from the bank resolution fund.
Economic data was also encouraging. This included upbeat ISM Services Index, factory orders, trade balance and initial claims data.
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