With the commencement of the Federal Open Market Committee's
two-day meeting, investors were once again hopeful about fresh
monetary stimulus which guided the benchmarks into the green.
Encouraging housing data helped add to the gains and while the Dow
returned to its winning ways, the S&P 500 registered its
fourth-straight day of gains. However, markets dropped from the
day's highs after a German official rubbished reports that rescue
funds would be used to purchase bonds of troubled nations.
The Dow Jones Industrial Average (DJI) gained 0.8% to finish
95.51 points higher at 12,837.33. The Standard & Poor 500
(S&P 500) inched up a percent to close yesterday's trading
session at 1,357.98. The tech-laden Nasdaq Composite Index
outperformed the fellow benchmarks for the second-consecutive day
as it jumped 1.2% to end at 2,929.76. The fear-gauge CBOE
Volatility Index edged up by only 0.3% to settle at 18.38.
Consolidated volumes on the York Stock Exchange, the Nasdaq and the
American Stock Exchange were 6.7 billion shares, lower than last
year's daily average of 7.84 billion. The advancing stocks far
outnumbered the decliners on the NYSE; as for five stocks that
gained, only one stock moved lower.
Investors have often been hopeful about fresh monetary stimulus,
but time and again their hopes have been dashed as the central bank
never launched the third round of bond purchases. However, this
time, investors are again optimistic and their hopes are backed by
certain recent developments. A couple of weeks ago, Chicago Federal
Reserve Bank President Charles Evans and the Atlanta and San
Francisco Fed presidents had talked about injecting more liquidity
into the system. However, Fed Chairman Ben Bernanke dampened the
mood somewhat as he did not say anything definite on monetary
policy during his last congressional testimony. Moreover, with
economic readings being largely dismal and European concerns
proving to be a constant bother, the case for implementing monetary
policy gets stronger.
Additionally, investors have also drawn optimism from hints that
central banks across the globe would join hands to 'stabilize' the
flagging financial situation. These signals have buoyed benchmarks
over the past few sessions, often negating the impact of Euro debt
woes. With the commencement of the Fed's two-day summit yesterday,
investors' hopes further intensified as they wait anxiously to for
a positive announcement on Wednesday. Market onlookers were also of
the view that the central bank might extend 'Operation Twist'. The,
Fed had announced the economic stimulus package termed 'Operation
Twist' in September last year.
While such hopes helped benchmarks keep afloat in positive
territory, the U.S. Department of Housing and Urban Development
further lifted sentiment with positive data on building permits.
According to the report: "Privately-owned housing units authorized
by building permits in May were at a seasonally adjusted annual
rate of 780,000. This is 7.9 percent (±1.0%) above the revised
April rate of 723,000 and is 25.0 percent (±1.5%) above the May
2011 estimate of 624,000". The reported figures were also
significantly higher than consensus estimates of 723,000. However,
housing starts numbers were weak, dropping 4.8% from April to
seasonally adjusted annual rate of 708,000 in May.
Coming to housing stocks, the PHLX Housing Sector (HGX) jumped
1.2% and the SPDR S&P Homebuilders (XHB) gained 1.1%. Among the
gainers, The Home Depot, Inc. (NYSE:
), Toll Brothers Inc. (NYSE:
), PulteGroup, Inc. (NYSE:
), DR Horton Inc. (NYSE:
) and Beazer Homes USA Inc. (NYSE:
) added 1.2%, 1.5%, 3.0%, 1.3% and 5.2%, respectively.
The benchmarks did end sufficiently higher yesterday, but they
slipped from their day's highs following discouraging comments from
a German official. The Group of 20 is meeting at summit and
investors had hoped for key decisions to emerge from it. The
British media had earlier reported that Angela Merkel, Chancellor
of Germany, might give in to the idea of using the European
Financial Stability Facility and the European Stability Mechanism
to buy bonds of troubled European nations. However, such claims
were later rubbished by a German government official after he told
Reuters that "There was no discussion here in Los Cabos about any
concrete initiatives" related to bond purchases.
Though some of the gains evaporated, financials ended
significantly higher. The Financial Select Sector SPDR (XLF) jumped
1.7% and key stocks including American Express Company (NYSE:
), Bank of America Corp (NYSE:
), Citigroup Inc. (NYSE:
), Goldman Sachs Group, Inc. (NYSE:
), Morgan Stanley (NYSE:
) gained 2.0%, 4.5%, 3.5% and 2.9%, respectively.
AMER EXPRESS CO (AXP): Free Stock Analysis
BANK OF AMER CP (BAC): Free Stock Analysis
BEAZER HOMES (BZH): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
D R HORTON INC (DHI): Free Stock Analysis
GOLDMAN SACHS (GS): Free Stock Analysis Report
HOME DEPOT (HD): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
PULTE GROUP ONC (PHM): Free Stock Analysis
TOLL BROTHERS (TOL): Free Stock Analysis Report
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