Benchmarks posted solid gains on Monday after weak jobs report raised hopes of a delay in interest rate hike. Friday's nonfarm payroll data showed job additions slumped to a 15-month low in March. Meanwhile, U.S. service sector growth rate also touched a three-month low last month.
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The Dow Jones Industrial Average (DJI) gained 0.7%, to close at 17,880.85. The Standard & Poor's 500 (S&P 500) also increased 0.7% to 2,080.62. The tech-laden Nasdaq Composite Index closed at 4,917.32; gaining 0.6%. The fear-gauge CBOE Volatility Index (VIX) went up 0.5% to settle at 14.74. A total of about 6.2 billion shares were traded on Monday, in-line with the average for last five trading sessions. Advancers outpaced declining stocks on the NYSE. For 70% stocks that advanced, 27% declined.
Benchmarks started the week on a positive note after investors ruled out a sooner-than-expected rise in interest rates due to disappointing jobs data. Last Friday, the Bureau of Labor Statistics (BLS) reported the U.S. economy created a total of 126,000 jobs in March, less than the consensus estimate of 247,000. Job additions fell below 200,000, bringing an end to the unbroken run of 12 such successive monthly gains. Additionally, data for both January and February was revised downward, which means that 69,000 less jobs were added during these months taken together. As a result, hiring in the first quarter declined to an average of 197,000, compared to job additions of 289,000 in the fourth quarter. Additionally, labor force participation rate touched a 37-year low of 62.7%.
However, hourly pay gained a solid 0.3% in March from prior month and 2.1% from a year earlier. Average hourly earnings have advanced by 7 cents for those employed by the private sector in March.
Separately, the unemployment rate remained at a six and a half year low figure of 5.5% in March. The U-6 rate which includes the unemployed, the underemployed and the discouraged also dropped to 10.9% in March, the first time it has gone below 11% since Aug 2008.
Adding to the bullish sentiment, New York Fed President William Dudley said the timing of hiking rates "will be data dependent and remains uncertain because the future evolution of the economy cannot be fully anticipated". He added: "I anticipate that the path will be relatively shallow" as "headwinds in the aftermath of the financial crisis are still in evidence." Last month, Federal Reserve Chairwoman Janet Yellen said there was a possibility of a gradual hike in interest rates sometime this year.
The Utilities Select Sector SPDR (XLU) turned out to be the second biggest gainer among the S&P 500 sectors, as this sector tends to perform well in low interest rate environment. The sector gained 1.4%. Key utilities stocks including NextEra Energy Inc ( NEE ), Exelon Corporation ( EXC ), Southern Company ( SO ), PG&E Corporation ( PCG ) and Duke Energy Corporation ( DUK ) advanced 0.8%, 1.4%, 0.6%, 1.3% and 1.7%, respectively.
The Energy Select Sector SPDR (XLE) gained 1.8%, the highest among the S&P 500 sectors. Energy shares gained as oil prices moved north. Expectations on Iran taking longer time to increase oil exports and anticipation that rise in U.S. crude inventories is slowing down boosted oil prices on Monday.
Saudi Arabia hiking prices for oil exports to Asia also had a positive impact on oil prices. WTI crude and Brent crude gained 5.8% and 5.5% to $52.14 per barrel and $58.12 a barrel, respectively. Dow components Exxon Mobil Corporation ( XOM ) and Chevron Corporation ( CVX ) advanced 0.9% and 1.6%, respectively. Other key energy stocks such as EOG Resources, Inc. ( EOG ), Kinder Morgan, Inc. ( KMI ) and Transocean Ltd. ( RIG ) increased 2.3%, 0.6% and 10.1%, respectively. Yesterday's gains were broad based, with all 10 S&P 500 sectors ending in the green.
Meanwhile, the Institute for Supply Management reported that ISM Services Index decreased to 56.5% in March from February's reading of 56.9%. The fall was more than the consensus estimate of a decrease to 56.7%. However, the reading remained above the 50-mark, indicating businesses are expanding. Additionally, the Non-Manufacturing Index for March has decreased 1.9 percentage points to 57.5% from February's reading of 59.4%. On the other hand, the New Orders Index increased to 57.8% in March from 56.7% in February.
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