Dovish statements from the Fed and strong economic data led to a strong comeback for markets on Wednesday. An indication from a Fed official that a September rate hike was unlikely was the major reason for the rebound.
This helped stocks snap a six-day losing streak caused by concerns about China's economic slowdown. The Dow surged almost 4% or 619.07 points to close above the 16,000 mark. In doing so, it registered its biggest one-day percentage gain since Nov 2011. This is the blue chip index's third largest gain in terms of points and the best since the crisis of 2008. Other benchmarks also posted record increases.
Dudley Strikes a Dovish Note
The Dow recorded a comeback on Wednesday after the New York Federal Reserve President William Dudley said that a September rate hike is "less compelling." He was upbeat about the state of U.S. economy, but said that "international developments have increased the downside risk to U.S. economic growth."
Given the slowdown in China's economy, decline in commodity prices and volatility in financial markets, he believes that an increase in interest rates next month will be less appropriate.
His statements are extremely relevant since minutes of the Federal Open Market Committee meeting held on Jul 28 and 29 revealed little about the timing of a rate hike. Investors are keeping an eye on the timing of the first rate hike since Dec 2008. The Fed has kept its federal funds rate near zero level to boost economic growth.
Durable Orders Increase
Meanwhile, rise in orders for long-lasting U.S. goods indicated business investments are picking up, which eventually boosted the broader markets. The U.S. Department of Commerce reported that new orders for manufactured durable goods increased 2% to $241.1 billion in July, contrary to the consensus estimate of a 0.3% decline.
Demand for automobiles and military hardware was cited to be the reason behind this rise in durable orders. While demand for autos increased 4% in July, demand for defense goods including fighter jets, missiles and tanks skyrocketed 22.3%.
Demand for core orders that excludes the volatile transportation and defense industries also increased 2.2% in July, its biggest gain since Jun 2014. Additionally, orders for June were revised to 4.1%, up from previously estimated growth of 3.4%.
5 Highest Gainers
All Dow components ended in the green on Tuesday, with tech stocks ending as the highest gainer. Below we present the five highest gainers for the Dow on Wednesday. Predictably, three of these are tech stocks. The Technology Select Sector SPDR (XLK) advanced 5% and was the biggest gainer among the S&P 500 sectors.
These gains led to a more than welcome rebound, given a loss of more than 10% over the last five days. This is why it may be a good idea to identify those components which have notched up the highest gains, since they may be relatively better bets in the days ahead.
Merck & Co. Inc.MRK gained 6.4% on Tuesday, ending at $54.42. Trading volume for the day was 22.7 million.
Apple Inc.AAPL emerged as the second highest gainer, moving up 5.7% to close at $109.69. Trading volume for the day was 96.2 million.
Visa Inc.V came in third, increasing 5.6% to end at $70.69. Trading volume for the day was 12.1 million.
Microsoft CorporationMSFT came in next, increasing 5.5% to end at $42.71. Trading volume for the day was 63 million.
Intel CorporationINTC came in at fifth place, also gaining 5.5% to end at $27.30. Trading volume for the day was 46.9 million.
Volatility to Continue?
Despite Wednesday's record gains, a section of analysts believe that stocks could suffer high volatility in the days ahead. Key economic data is scheduled for release in the days ahead. This includes crucial GDP numbers, which are likely to be revised upward. This could provide a strong basis for market gains in the days ahead.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.