The Federal Reserve's upbeat view on the economy's prospects
and their decision to further trim the monthly bond repurchase
plan helped benchmarks end higher on Wednesday. The day's
initial decline owing to weak first-quarter economic growth was
completely offset by the time markets closed. The Dow closed at a
record high and the S&P 500 closed just 7 points below its
record close of 1890.90. Private-sector hiring numbers and
manufacturing activity data for Chicago were also positive.
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Ahead of Wall Street
The Dow Jones Industrial Average (DJI) gained 0.3% to close
Wednesday's trading session at 16,580.84. The Standard & Poor
500 (S&P 500) too rose 0.3% to finish at 1,883.95. The
tech-laden Nasdaq Composite Index also went up 0.3% to 4,114.56.
The fear-gauge CBOE Volatility Index (VIX) dropped 2.2% to settle
at 13.41. Total volume on the New York Stock Exchange was 3.7
billion shares. Advancers outpaced declining stocks on the
NYSE. For 65% stocks that advanced, 32% declined.
For the month, the Dow and S&P 500 gained 0.8% and 0.6%,
respectively. However, intense selling pressure in bio-tech and
Internet stocks dragged the Nasdaq down. The tech-heavy Nasdaq
slipped 2.0%. The S&P 500 and the blue-chip index ended
in the green zone as investors received better-than-expected
corporate earnings results. Also, encouraging economic data on
factory activities, retail sales, domestic industrial production
and durable goods helped the benchmarks finish in the green.
A gauge of manufacturing sentiment in the Philadelphia region and
an increase in Conference Board's leading economic index also
added to the bullish sentiment. New deals in the health care
sector were also welcomed by the investors. Further, Federal
Reserve Chairwoman Janet Yellen's assurance to keep the key
interest rates low for some time was also well received by the
The Federal Open Market Committee (FOMC) indicated that economic
activity has picked up since its last meeting in March. The
Federal Reserve said that despite harsh winter weather in January
and February, the economy has recovered of late.
The FOMC's policy statement also confirmed that the central bank
will cut its buyback plan by another $10 billion starting May.
Thus, the bond-buyback program will be brought down to $45
billion a month. Also, the committee agreed to keep its federal
funds rate low even after the end of the quantitative easing
program in order to support the economy for some more time.
Earlier in April, the central bank had said the economic stimulus
program may end this fall and the key lending rates will then be
raised six months later. The central bank also mentioned that it
will rely on a 'wide range of information' on jobs as well as
inflation and not just the unemployment rate while deciding on
raising interest rates.
A positive finish for the benchmarks was also ensured by
promising economic numbers. The national employment report from
Automatic Data Processing, Inc. (NASDAQ:
) showed private sector hiring improved in April. The report
stated 220,000 private jobs were added in April. This was more
than expectations of 210,000 job additions. The figure was also
more than March's revised figure of 209,000. April's job
additions were also the most in the last four months. In January,
175,000 jobs were added, followed by 178,000 in February and
209,000 in March.
Chicago PMI numbers were also encouraging. The Supply
Management-Chicago noted that Chicago Business Barometer jumped
to 63 in April from March's reading of 55.9. This rise in the
Chicago Purchasing Managers Index in April was more than the
Zacks Consensus Estimate of an increase to 56.6. The increase in
the Chicago PMI numbers was attributed to the increase in new
orders, production and employment levels.
On the other hand, first quarter GDP growth was drastically lower
than expected. According to the "advance" estimate by the Bureau
of Economic Analysis, the first quarter output of goods and
services produced by labor and property located in the United
States increased at an annual rate of 0.1%, lower than the Zacks
Consensus Estimate of 1.2%. In the fourth quarter, the US economy
had expanded 2.6%. Harsh winter weather was cited to be the
primary reason behind this slow growth in the first quarter.
However, this discouraging data made little impact on investor
sentiment as they chose to focus on the positives.
Nine out of 10 sectors of the S&P 500 ended in the green. The
Materials Select Sector SPDR (XLB) led the advance as the sector
rose 0.8%. Top holdings from the sector such as E. I. du Pont de
Nemours and Company (NYSE:
), Monsanto Company (NYSE:
), The Dow Chemical Company (NYSE:
), Praxair Inc. (NYSE:
) and LyondellBasell Industries NV (NYSE:
) gained 0.2%, 0.2%, 2.4%, 1.6% and 1.7%, respectively.
The Industrials sector followed the Materials sector. The
Industrial Select Sector SPDR (XLI) rose 0.7%. Key stocks from
the sector such as General Electric Company (NYSE:
), United Technologies Corp. (NYSE:
), Union Pacific Corporation (NYSE:
), The Boeing Company (NYSE:
) and 3M Company (NYSE:
) increased 0.5%, 0.7%, 0.3%, 0.5% and 1.1%, respectively.