Benchmarks ended their streak of gains after the president of
the Federal Reserve Bank of San Francisco, John Williams said the
Central Bank could start tapering the monetary stimulus program
this summer, if the job market continues to improve. Meanwhile, a
string of discouraging domestic reports was released yesterday,
adding to investors' woes. Nine out of the top ten S&P 500
industry groups ended in the red. Consumer discretionary stocks
were the major losers while the technology sector was the only
The Dow Jones Industrial Average (DJI) lost 0.3% to close the
day at 15,233.22. The S&P 500 slipped 0.5% points to finish
yesterday's trading session at 1,650.47. The tech-laden Nasdaq
Composite Index decreased 0.2% to end at 3,465.24. The fear-gauge
CBOE Volatility Index (VIX) increased 2.0% to settle at 13.07.
Consolidated volumes on the New York Stock Exchange, American
Stock Exchange and Nasdaq were roughly 6.5 billion shares,
marginally above 2013's average of 6.36 billion shares. Declining
stocks outnumbered the advancers. For the 38% that advanced, 59%
The Fed's monetary stimulus has been largely responsible for
the improving economic situation in the U.S. Owing to this
stimulus, two of the most important economic indicators, the
housing and labor markets, have improved. Moreover, this monetary
stimulus has also been largely responsible for pushing benchmarks
to new highs. The S&P 500 has touched new highs 15 times this
year and has gained almost 16% till now in 2013.
Till now, there have been no official statements by the
Federal Reserve on tapering off monetary stimulus. But in the
light of improved economic conditions, monetary stimulus may be
gradually ended in the upcoming months. The intention of buying
$85-billion worth of bonds every month was to kick-start and
stabilize economic growth. Assuming the job market keeps
improving at its current pace, the president of the Federal
Reserve of San Francisco, John Williams said monetary stimulus
could be reduced or perhaps stopped by the end of the year.
"We could reduce somewhat the pace of our securities
purchases, perhaps as early as this summer," Williams said.
"Then, if all goes as hoped, we could end the purchase program
sometime late this year," he added.
According to the U.S. Department of Labor, initial claims data
came in at 360,000, above the consensus estimate of 346,000 and
the previous week's revised figure of 328,000. This is the
highest level recorded in six weeks. However, the four-week
moving average was little changed came in at 339,250 compared to
previous week's figure of 338,000.
Meanwhile, the Consumer Price Index for All Urban Consumers
(CPI-U) declined 0.4% in April compared to the consensus estimate
of a decline of 0.2%. The increase in the index for tobacco, cars
and trucks, shelter and vehicles were offset by declines in
airline fares, recreation and apparels.
According to the U.S. Department of Housing and Urban
Development, building permits in April increased 14.3% from
March's figure of 890,000 to 1,017,000. This figure was also
above the consensus estimate of 947,000. However, housing starts
declined 16.5% to 853,000 below March's figure of 1,021,000. This
was below the consensus estimate of 975,000. Privately-owned
housing completions for April also decreased 14.3% from March's
figure of 804,000 to 689,000 while single-owned housing
completions decreased 9.8% from March's figure of 594,000 to
Meanwhile, the Federal Reserve Bank of Philadelphia's general
economic index, which covers eastern Pennsylvania, southern New
Jersey and Delaware, declined to -5.2, well below the consensus
estimate of 2.6 and previous month's index of 1.3. Within this
index, the new orders index declined to -7.9 while the index for
shipments decreased to -8.5. The employment index came in at -8.7
below the previous month's figure of -6.8.
On a positive note, the Bloomberg Consumer Comfort Index
improved for the month of May. The index improved to -1 compared
to -4 recorded in the previous week. The improvement has come on
the back of a buoyant housing market and profits in the stock
market. The barometer for personal finances improved to 1.8 from
previous week's figure of 0.8. Meanwhile, the barometer measuring
macro-economic conditions declined marginally to -57.9 from
previous week's figure of -57.8.
Among the top ten S&P 500 industry groups, technology
stocks were the only gainers. The Technology SPDR (XLK) gained
0.6%. Stocks such as Apple Inc. (NASDAQ:
), Microsoft Corporation (NASDAQ:
), International Business Machines Corp. (NYSE:
), Cisco Systems, Inc. (NASDAQ:
) and Oracle Corporation (NASDAQ:
) gained 1.3%, 0.7%, 0.7%, 12.6%, and 1.1%, respectively.
Consumer discretionary stocks were the biggest losers. The
Consumer Discretionary SPDR (XLY) lost 1.2%. Stocks such as the
Walt Disney Company (NYSE:
), CBS Corporation (NYSE:
), Comcast Corporation (NASDAQ:
), Netflix, Inc. (NASDAQ:
) and News Corp (NASDAQ:
) declined 1.8%, 1.7%, 2.0%, 2.6% and 1.6%, respectively.
APPLE INC (AAPL): Free Stock Analysis Report
CBS CORP (CBS): Free Stock Analysis Report
COMCAST CORP A (CMCSA): Free Stock Analysis
CISCO SYSTEMS (CSCO): Free Stock Analysis
DISNEY WALT (DIS): Free Stock Analysis Report
INTL BUS MACH (IBM): Free Stock Analysis
MICROSOFT CORP (MSFT): Free Stock Analysis
NETFLIX INC (NFLX): Free Stock Analysis
NEWS CORP INC-A (NWSA): Free Stock Analysis
ORACLE CORP (ORCL): Free Stock Analysis
To read this article on Zacks.com click here.