Benchmarks ended higher on Tuesday after weak Chinese trade data raised hopes that further stimulus measures will be announced to boost its fragile economy. Stimulus hopes helped benchmarks post a strong recovery on Tuesday after a dismal performance last week. The Dow recorded its largest percentage and point gains since Aug 26.
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The Dow Jones Industrial Average (DJI) gained 2.4% or 390.30 points to close at 16,492.68. The Standard & Poor's 500 (S&P 500) advanced 2.5% to end the day at 1,969.41. The tech-laden Nasdaq Composite Index closed at 4,811.93, increasing 2.7%. The fear-gauge CBOE Volatility Index (VIX) plunged 10.4% to settle at 24.90. A total of about 6.8 billion shares were traded on Tuesday, lower than the month to date average of 7.5 billion. Advancing stocks outpaced decliners on the NYSE. For 77% stocks that advanced, 21% declined.
China's trade surplus increased in August to $60.2 billion from $43.03 billion in July. Declines in both exports and imports resulted in a significant trade gap. The world's second largest economy saw its exports drop 5.5% in August from a year earlier, while its imports plunged 13.8% from year ago levels. China's exports declined for the second month in a row in August, while its imports fell for the tenth straight month.
Meanwhile, China's General Administration of Customs said that the country's exports will continue to see "relatively big pressure" in the fourth quarter. Beijing's surprise move to devalue its currency to boost exports failed to help its struggling exporters. Additionally, the country's foreign exchange reserves dropped by $93.9 billion in August from July, its biggest ever decline in terms of dollar.
In further signs of a slowdown, China had earlier trimmed its 2014 economic growth estimate from 7.4% to 7.3%. Weaker-than-expected contribution from the services sector was cited to be the reason behind this downwardly revised growth estimate.
Dismal trade data fueled hopes that China may implement additional stimulus measures to recover its flagging economy, which eventually boosted the US broader markets. Separately, Germany posted record exports growth. According to Germany's Federal Statistics Office, exports gained a seasonally adjusted 2.4% from prior month to 103.4 billion euros ($115.35 billion) in July. Imports were up 2.2% to 80.6 billion euros.
Tuesday's gains were broad based with all the 10 sectors of the S&P 500 ending in the green. The Homebuilders ETF (XHB) was the biggest gainer, increasing 3.3%. Key stocks from the sector including Beazer Homes USA Inc. ( BZH ), Lennar Corporation ( LEN ), DR Horton Inc. ( DHI ), PulteGroup, Inc. ( PHM ) and NVR, Inc. ( NVR ) increased 4.6%, 3.8%, 3.6%, 2.9% and 1.9%, respectively.
The Technology Select Sector SPDR (XLK) advanced 2.8% and was the second biggest gainer among the S&P 500 sectors. Key holdings from the sector including Apple Inc. ( AAPL ), Microsoft Corporation ( MSFT ), AT&T Inc. ( T ), Google Inc ( GOOGL ) and International Business Machines Corporation ( IBM ) increased 2.8%, 3%, 1.8%, 2.4% and 2.5%, respectively.
Separately, gains in biotech shares had a positive impact on the Nasdaq. Biotech stocks such as Gilead Sciences Inc. ( GILD ), Biogen Inc. ( BIIB ), Amgen Inc. ( AMGN ) and Celgene Corporation ( CELG ) increased 2.8%, 2.1%, 5.1% and 4.8%, respectively. Overall, the iShares Nasdaq Biotechnology (IBB) gained 4.4%.
Coming to domestic economic data, the Board of Governors of the Federal Reserve System reported that consumer credit increased by $19.1 billion in July, following June's $27 billion increase. Analysts had projected an increase by $18 billion. Consumer credit increased at a seasonally adjusted annual rate of 6.75%. Non-revolving credit increased at an annual rate of 7%. Revolving credit also increased at an annual rate of 5.75%.
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