Markets added modest gains yesterday as investors were buoyed by
a possible favorable outcome of the Fed policy meet and German
court's key decision if the nation can help the troubled neighbors.
Despite the nature of modest gains, they were enough to lift the
Dow to its highest level since 2007. However, the day lacked any
major headlines or key economic data that made an impact on the
benchmarks. Thus, volumes continued to be low and the lack of
catalyst also justified for the moderate movements of the
benchmarks.
The Dow Jones Industrial average (DJI) gained 0.5% and ended at
13,323.36. The Standard & Poor 500 (S&P 500) edged up 0.3%
to finish yesterday's trading session at 1,433.56. The tech-laden
Nasdaq Composite Index moved up by a meager 0.51 point to close
hardly changed at 3,104.53. The fear-gauge CBOE Volatility Index
(VIX) was up 0.8% to settle at 16.41. Consolidated volumes on the
New York Stock Exchange, the American Stock Exchange and Nasdaq
were roughly 5.91 billion shares, sharply lower than last year's
daily average of 7.84 billion shares. Advancers outpaced the
decliners on the NYSE in a ratio of 2:1.
Gains were modest but were sufficient to extend the Dow's gains
and lift it to the best levels in almost five years. However, the
Dow's jump to its highest level since 2007 did not come simply on
the back of yesterday's gains. Benchmarks have been rallying higher
over the past few days, which in turn is largely due to fresh hopes
about the US central bank announcing additional economic
measures.
Those hopes have gained strength based on a few developments. At
the end of August, US Federal Reserve Chairman Ben Bernanke had
commented that the central bank "will provide additional policy
accommodation as needed to promote a stronger economic recovery and
sustained improvement in labor market conditions in a context of
price stability".
Also, dismal nonfarm payroll data have boosted hopes about a
third round of quantitative easing. Labor data is a key indicator
of economic health. Strategists had opined that weak numbers would
possibly make the US Federal Reserve prioritize the need for
additional economic measures. A report by Reuters noted that
economists predict there is a 60% chance that policy makers will
announce QE3. Thus, all eyes are fixed on the two-day Fed meeting;
and anticipations of a favorable result kept the markets in the
green yesterday.
This apart, investors are also optimistic about what the German
court will decide about the nation's position on the Euro-zone
fund. The Germany's Constitutional Court on Wednesday will announce
if it approves the European Stability Mechanism. However, market
sentiment is of the belief that the court will approve the
same.
Separately, it was reported that Moody's Investors Service has
sent out a warning about reducing the "Aaa" rating on US government
debt. The ratings agency might cut the rating by a notch if the
nation fails to successfully conclude budget negotiations.
On the other hand, the U.S. Census Bureau and the U.S. Bureau of
Economic Analysis, through the Department of Commerce, reported
that the trade deficit climbed to $42.0 billion in July, modestly
higher than $41.9 billion in June. This was narrower than consensus
estimates of a deficit of $43.9 billion.
Coming to the individual sectors, the financial sector was a
major gainer among the 10 S&P industry groups. The Financial
Select Sector SPDR (XLF) was up 0.8% and stocks including Visa Inc
(NYSE:
V
), Mastercard Inc (NYSE:
MA
), JPMorgan Chase & Co. (NYSE:
JPM
), Citigroup Inc. (NYSE:
C
), Morgan Stanley (NYSE:
MS
), UBS AG (USA) (NYSE:
UBS
) and Goldman Sachs Group, Inc. (NYSE:
GS
) jumped 2.2%, 1.2%, 2.2%, 2.6%, 3.9%, 2.3% and 1.8%,
respectively.
CITIGROUP INC (C): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
Report
MASTERCARD INC (MA): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
UBS AG (UBS): Free Stock Analysis Report
VISA INC-A (V): Free Stock Analysis Report
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