Benchmarks ended their streak of gains after the president of the Federal Reserve Bank of San Francisco, John Williams said the Central Bank could start tapering the monetary stimulus program this summer, if the job market continues to improve. Meanwhile, a string of discouraging domestic reports was released yesterday, adding to investors’ woes. Nine out of the top ten S&P 500 industry groups ended in the red. Consumer discretionary stocks were the major losers while the technology sector was the only gainer.
The Dow Jones Industrial Average (DJI) lost 0.3% to close the day at 15,233.22. The S&P 500 slipped 0.5% points to finish yesterday’s trading session at 1,650.47. The tech-laden Nasdaq Composite Index decreased 0.2% to end at 3,465.24. The fear-gauge CBOE Volatility Index (VIX) increased 2.0% to settle at 13.07. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.5 billion shares, marginally above 2013’s average of 6.36 billion shares. Declining stocks outnumbered the advancers. For the 38% that advanced, 59% declined.
The Fed’s monetary stimulus has been largely responsible for the improving economic situation in the U.S. Owing to this stimulus, two of the most important economic indicators, the housing and labor markets, have improved. Moreover, this monetary stimulus has also been largely responsible for pushing benchmarks to new highs. The S&P 500 has touched new highs 15 times this year and has gained almost 16% till now in 2013.
Till now, there have been no official statements by the Federal Reserve on tapering off monetary stimulus. But in the light of improved economic conditions, monetary stimulus may be gradually ended in the upcoming months. The intention of buying $85-billion worth of bonds every month was to kick-start and stabilize economic growth. Assuming the job market keeps improving at its current pace, the president of the Federal Reserve of San Francisco, John Williams said monetary stimulus could be reduced or perhaps stopped by the end of the year.
“We could reduce somewhat the pace of our securities purchases, perhaps as early as this summer,” Williams said. “Then, if all goes as hoped, we could end the purchase program sometime late this year,” he added.
According to the U.S. Department of Labor, initial claims data came in at 360,000, above the consensus estimate of 346,000 and the previous week’s revised figure of 328,000. This is the highest level recorded in six weeks. However, the four-week moving average was little changed came in at 339,250 compared to previous week’s figure of 338,000.
Meanwhile, the Consumer Price Index for All Urban Consumers (CPI-U) declined 0.4% in April compared to the consensus estimate of a decline of 0.2%. The increase in the index for tobacco, cars and trucks, shelter and vehicles were offset by declines in airline fares, recreation and apparels.
According to the U.S. Department of Housing and Urban Development, building permits in April increased 14.3% from March’s figure of 890,000 to 1,017,000. This figure was also above the consensus estimate of 947,000. However, housing starts declined 16.5% to 853,000 below March’s figure of 1,021,000. This was below the consensus estimate of 975,000. Privately-owned housing completions for April also decreased 14.3% from March’s figure of 804,000 to 689,000 while single-owned housing completions decreased 9.8% from March’s figure of 594,000 to 536,000.
Meanwhile, the Federal Reserve Bank of Philadelphia’s general economic index, which covers eastern Pennsylvania, southern New Jersey and Delaware, declined to -5.2, well below the consensus estimate of 2.6 and previous month’s index of 1.3. Within this index, the new orders index declined to -7.9 while the index for shipments decreased to -8.5. The employment index came in at -8.7 below the previous month’s figure of -6.8.
On a positive note, the Bloomberg Consumer Comfort Index improved for the month of May. The index improved to -1 compared to -4 recorded in the previous week. The improvement has come on the back of a buoyant housing market and profits in the stock market. The barometer for personal finances improved to 1.8 from previous week’s figure of 0.8. Meanwhile, the barometer measuring macro-economic conditions declined marginally to -57.9 from previous week’s figure of -57.8.
Among the top ten S&P 500 industry groups, technology stocks were the only gainers. The Technology SPDR (XLK) gained 0.6%. Stocks such as Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), International Business Machines Corp. (NYSE:IBM), Cisco Systems, Inc. (NASDAQ:CSCO) and Oracle Corporation (NASDAQ:ORCL) gained 1.3%, 0.7%, 0.7%, 12.6%, and 1.1%, respectively.
Consumer discretionary stocks were the biggest losers. The Consumer Discretionary SPDR (XLY) lost 1.2%. Stocks such as the Walt Disney Company (NYSE:DIS), CBS Corporation (NYSE:CBS), Comcast Corporation (NASDAQ:CMCSA), Netflix, Inc. (NASDAQ:NFLX) and News Corp (NASDAQ:NWSA) declined 1.8%, 1.7%, 2.0%, 2.6% and 1.6%, respectively.
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