Fears of Federal Reserve easing off the bond purchase program
triggered a sell-off on Wednesday, pushing benchmarks into
negative territory. Meanwhile, in an attempt to lower the
nation's cost, Germany is planning to introduce a new bond named
"Deutschlandbond". Industrial output of Europe increased beyond
market estimates, contrary to expectations. All the top ten
S&P 500 industry groups suffered losses out of which consumer
discretionary stocks suffered the most.
The Dow Jones Industrial Average (DJI) lost 0.8% to close the
day at 14,995.23. The S&P 500 decreased 0.8% to finish
yesterday's trading session at 1,612.52. The tech-laden Nasdaq
Composite Index declined 1.1% to end at 3,400.43. The fear-gauge
CBOE Volatility Index (VIX) increased 8.9% to settle at 18.59 and
has surged 20% over the week. 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. Declining stocks outnumbered the advancers.
For the 22% that advanced, 77% declined.
Investor confidence has been falling since Bernanke's
testimony, at Capitol Hill, where he indicated that the $85
billion bond purchase program would come to an end, albeit
slowly. For the 7th time in past 15 days the Dow Jones has
oscillated in the range of 200 points. As a result, the fear
gauge spiked 20% last week. The S&P 500 has declined 3.4%
since May 21, a day before Bernanke's testimony took place.
Yesterday, the index closed just a couple of points above the
support level of 1610.55.
On the international front, Germany plans to present a new
bond named "Deutschlandbond". This bond will be introduced during
the start of July. Ever since the Euro Zone has started reeling
under the financial crisis, borrowing costs have gone down to a
record low. In comparison, Germany has been paying higher rates,
indicating a weak economy. The new bond will be introduced
collectively by 16 states of Germany to lower these costs. The
value of the bond is expected to vary between 3 to 5 billion
euro. A government official added that if this pilot step
succeeds, the government would consider taking similar steps in
future. As of now, the maturity period of bond is unknown but
"finance ministries of some states" indicate the tenure will be
between 7 and 10 years.
Meanwhile, industrial growth from the Euro Zone came in above
market expectations. The industrial production in the region
increased 0.4%, well above estimates of a decline of 0.2%.
Industrial productions in energy output declined 1.5%. Industrial
production of cars, electronics and durable consumer goods
contracted 2.7%. On a year over year basis, industrial production
Industrial production in Europe's largest economies Germany
and France increased 1.2% and 2.3% while in Italy, industrial
production declined 0.3%. The region's economy is still
struggling to get back on its feet. The Euro Zone is facing the
heat of the sovereign debt crisis. As a result, small and medium
sized companies are facing difficulties to refinance their
All the top ten S&P 500 industry groups suffered losses
among which, consumer discretionary stocks suffered the most. The
Consumer Discretionary SPDR (XLY) lost 1.1%. Stocks such as The
Home Depot, Inc. (NYSE:
), The Walt Disney Company (NYSE:
), Comcast Corporation (NASDAQ:
), Amazon.com, Inc. (NASDAQ:
) and News Corp (NASDAQ:
) lost 1.6%, 1.3%, 1.6%, 1.1% and 2.3%, respectively.
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