President Barack Obama's decision to refrain from sending in ground troops to Iraq helped benchmarks end in the positive zone on Friday. His comments partially eased concerns about oil supply disruption due to the ongoing Iraqi sectarian clash. Intel's second-quarter revenue forecast hike also helped benchmarks shrug of early jitters caused by weak consumer sentiment data. Nonetheless, the Iraqi situation, the consequently higher energy prices and growth concerns dragged the indices down to their worst weekly losses in two months and also snapped the longest weekly run of gains in 2014.
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The Dow Jones Industrial Average (DJI) gained about 0.3% to close at 16,775.58. The Standard & Poor 500 (S&P 500) added 0.3% to finish at 1,936.15. The tech-laded Nasdaq Composite Index ended Friday's session at 4,310.65, down 0.3%. The fear-gauge CBOE Volatile Index (VIX) dropped 3.0% to settle at 12.18. Total volume on the New York Stock Exchange was 2.60 billion. Advancers outpaced decliners on the NYSE, as 67% stocks advanced as compared to 30% decliners.
Sectarian clashes in Iraq have led to fears of oil supply disruption. These concerns dented markets on Thursday and pushed up energy prices. Islamist insurgents reportedly closed in on Baghdad after seizing many other key cities.
Benchmarks on Thursday were affected by the Iraq clashes. Kurdish forces, the ethnic militant group in Iraq, have seized major cities. They also took control over the oil hub in Kirkuk after government's troops failed to secure the area and abandoned their posts. Prime Minister of Iraq Nouri al-Maliki stated that this is the greatest threat to his government since taking over power. Following these developments, U.S. oil prices surged to a nine-month high on Thursday. Crude futures gained $2.13 to settle at $106.53 a barrel, its highest closing price since Sep 18, 2013. Brent crude oil futures also went up $3.07 to settle at $113.02 a barrel, its highest level since Sep 9, 2013.
On Friday however, Obama's comments eased some of the jitters. He said the US government is helping Iraq's government with logistical support. Obama said: "We'll be monitoring the situation very carefully over the next couple of days… So far we have not seen major disruptions in oil supplies". John Kerry, Secretary of State, had said that he expects "timely decisions" from the President. Iraq accounts for 3.3 million barrels of crude every day.
Brent Crude Oil Last Day Future had hit a high of $114.40 on Friday, but settled at $113.35 per barrel. It gained 4.36% in five days. On the New York Mercantile Exchange, Crude Oil Jul 14 (CLN14.NYM) added 0.4% on Friday to settle at $107.36.
The energy sector emerged the biggest gainer among the S&P industry groups with Energy Select Sector SPDR ETF (XLE) gaining roughly 1%. Key energy stocks such as Exxon Mobil Corporation (NYSE: XOM ), Chevron Corporation (NYSE: CVX ), Schlumberger Limited (NYSE: SLB ), Halliburton Company (NYSE: HAL ), Transocean Ltd. (NYSE: RIG ) and ConocoPhillips (NYSE: COP ) gained 1.0%, 0.9%, 1.8%, 1.4%, 1.2% and 0.3%, respectively.
Intel Corporation (NASDAQ: INTC ) upped its second quarter revenue and gross margin forecasts. The largest semiconductor products manufacturer expects second-quarter net sales of $13.7 billion (+/- $300 million), up from $13.0 billion (+/- $300 million). The company also increased gross margin guidance by 1 percentage point (pp) to 64% (+/- 2 pp). The annual tax rate is expected to be 27%, down from 28% expected earlier. The company also expects full-year revenues to improve versus the prior expectations of numbers being in line with the 2013 level. Gross margin is now expected in the upper half of the previous range of 61% (+/- a few percentage points).
Intel's shares increased 6.8% following the annoucement and also helped the broader markets. The Technology Select Sector SPDR (XLK) closed about 0.6% higher. Key technology stocks such as Microsoft Corporation (NASDAQ: MSFT ), Oracle Corporation (NYSE: ORCL ), Cisco Systems, Inc. (NASDAQ: CSCO ) and Hewlett-Packard Company (NYSE: HPQ ) closed with gains of 1.6%, 0.3%, 0.2% and 5.3%, respectively.
There was also a lot happening on the mergers and acquisition front. The Priceline Group Inc. (NASDAQ: PCLN ) acquired restaurant reservation service OpenTable, Inc. (NASDAQ: OPEN ) for $2.6 billion. While Priceline's stock dropped about 3%, OpenTable's shares soared 48.4%. Private-equity investor Sycamore Partners announced late Thursday about its intentions to acquire Express Inc. (NYSE: EXPR ). Express' shares jumped 21.4% on Friday.
Economic data was largely disappointing. The U.S. Bureau of Labor Statistics reported that seasonally adjusted Producer Price Index for final demand dropped 0.2% in May. The drop in measure of prices received by producers at the first commercial sale was in contrast to consensus estimate of an increase of 0.1%. The decline came also after the index had surged 0.6% in April and 0.5% in March.
Separately, The Thomson-Reuters/University of Michigan preliminary June dropped to 81.2 from May's final reading of 81.9. It was also sharply lower than consensus estimate of a reading of 83.0. The preliminary reading touched a three-month low.
These dismal economic reports affected the mood somewhat as benchmarks had turned negative at the beginning of the session. The reports also come on the heels of other disappointing developments this week. Benchmarks failed to clinch weekly gains and suffered their biggest weekly losses in two months. The Dow, S&P 500 and Nasdaq lost 0.9%, 0.7% and 0.3%, respectively, during the week.
Merger and acquisition activities and a rally in small-cap stocks had propelled benchmarks to record highs on Monday. However, the rally halted on Tuesday as investors focused on valuations. The S&P 500 traded at 16.5 times the forecasted earnings of its members. Moreover, the gauge's 14-day relative strength index was at 73.7 on Tuesday, above the key technical level of 70. Any reading above 70 indicates a sell signal. Benchmarks ended in the red on Wednesday after World Bank trimmed its 2014 global growth forecast to 2.8% for the year. In January, the bank had projected that the global economy will expand by 3.2% this year. On Thursday, a spike in crude oil prices and discouraging economic data dragged the benchmarks down.
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