Investors finally had something to cheer about yesterday as all
the benchmarks ended in the green for the first time in five
sessions, spurred by better-than-expected U.S. service sector data.
At least for the day, investors were not too bothered by the
European crisis while the Group of Seven (G7) finance ministers and
central bank governors had a conference call where they discussed
the issue. However, they provided no clear indication regarding the
matter and lower-than-average volumes suggested investors were wary
of betting big bucks.
The Dow Jones Industrial Average (DJI) moved up 0.2% to close at
12,127.95. The Standard & Poor 500 (S&P 500) gained 0.6%
and finished yesterday's trading session at 1,285.50. The Nasdaq
Composite Index jumped 0.7% and closed over 18 points higher at
2,778.11. The fear-gauge CBOE Volatility Index (VIX) dropped 5.5%
to settle at 24.68. Consolidated volumes on the New York Stock
Exchange, the Nasdaq and the American Stock Exchange were 6.05
billion shares, well below the year-to-date daily average of 6.85
billion shares. Advancing stocks dominated the decliners on the
NYSE; as for 71% stocks that gained, 25% stocks declined.
For some time now investors' apprehensions have been growing
over the increasing threat that the European crisis poses to the
global economy. Greece has struggled to form a government and
successfully negotiate its bailout package which will secure its
place in the European currency union. While the nation goes to the
polls again this month, a survey late last month sparked enough
concerns by showing an anti-bailout party would command a large
enough majority to form a government if elections were held at that
The euro zone is itself beset by many concerns. Economic reports
have shown that unemployment in the region touched a record high in
April. Further, data released last month noted that Italy, Spain
and Portugal's GDP contracted 0.8%, 0.3% and 0.1%, respectively.
However, thanks to the 0.5% growth in Germany's GDP the euro zone
narrowly escaped a recession. The region ultimately recorded 'zero
GDP growth' in the first quarter. France too had zero GDP growth.
Additionally, borrowing costs in nations like Spain and Italy have
been on the rise. Such concerns have lingered, denting U.S.
However, investors did not have to witness another market slump
due to the European crisis yesterday. The G7 meet raised hopes as
they "agreed to monitor developments closely". A statement by the
U.S. Treasury Department noted that the G7 "reviewed developments
in the global economy and financial markets and the policy response
under consideration, including the progress toward financial and
fiscal union in Europe".
Nonetheless, the gains yesterday were anything but robust on the
back of the G7 meet, as the emergency conference ended with no
clear decision or indication as to the means to be used to solve
the lingering crisis. Separately, Mariano Rajoy, Spain's Prime
Minister, urged Europe "to support those that are in difficulty.
While rumors did the rounds that Spain was resisting a bailout and
Germany was pressing the troubled nation to secure a bailout for
its banks, German Chancellor Angela Merkel's spokesman said:
"Everyone knows that Europe is ready
... but the decision lies with the Spanish government alone".
Amidst these cross-Atlantic events, a positive report on the
U.S. service sector primarily enabled the markets to accomplish a
rare finish in the green. According to The Institute for Supply
Management, economic activity had increased in the
non-manufacturing sector for the month of May, the 29th consecutive
month of growth. According to the report, "The NMI registered 53.7
percent in May, 0.2 percentage point higher than the 53.5 percent
registered in April. This indicates continued growth this month at
a slightly faster rate in the non-manufacturing sector. The
Non-Manufacturing Business Activity Index registered 55.6 percent,
which is 1 percentage point higher than the 54.6 percent reported
in April, reflecting growth for the 34th consecutive month. The New
Orders Index increased by 2 percentage points to 55.5 percent, and
the Employment Index decreased by 3.4 percentage points to 50.8
percent, indicating continued growth in employment at a slower
rate". The increase in NMI was higher than consensus estimates,
which had expected it to post a reading of 52.9%.
Positive data boosted the spirits of investor, who had struggled
to come to terms with gloomy jobs data last Friday. Financials and
materials registered the highest gains. The Financial Select Sector
SPDR (XLF) jumped 1.5% and stocks including Citigroup Inc. (NYSE:
), Bank of America Corp (NYSE:
), Goldman Sachs Group, Inc. (NYSE:
), JPMorgan Chase & Co. (NYSE:
) and Morgan Stanley (NYSE:
) gained 3.8%, 2.9%, 1.3%, 3.2% and 4.1%, respectively.
As for the material sectors, the Materials Select Sector SPDR
(XLB) gained 0.9%. Among the gainers, Southern Copper Corp (NYSE:
), E I Du Pont De Nemours And Co (NYSE:
), PPG Industries, Inc. (NYSE:
) and Western Refining, Inc. (NYSE:
) were up 1.0%, 0.7%, 1.3% and 2.6%, respectively.
BANK OF AMER CP (BAC): Free Stock Analysis
CITIGROUP INC (C): Free Stock Analysis Report
DU PONT (EI) DE (DD): Free Stock Analysis
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
MORGAN STANLEY (MS): Free Stock Analysis Report
PPG INDS INC (PPG): Free Stock Analysis Report
SOUTHERN COPPER (SCCO): Free Stock Analysis
WESTERN REFING (WNR): Free Stock Analysis
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