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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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 investors.
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: ADP ) 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: DD ), Monsanto Company (NYSE: MON ), The Dow Chemical Company (NYSE: DOW ), Praxair Inc. (NYSE: PX ) and LyondellBasell Industries NV (NYSE: LYB ) 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: GE ), United Technologies Corp. (NYSE: UTX ), Union Pacific Corporation (NYSE: UNP ), The Boeing Company (NYSE: BA ) and 3M Company (NYSE: MMM ) increased 0.5%, 0.7%, 0.3%, 0.5% and 1.1%, respectively.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.