Benchmarks’ carried over the strong momentum gained during the first quarter into the second after a strong reading of the US and China manufacturing sectors boosted the markets yesterday. The Dow and S&P 500 hit multi-year highs as investors’ apprehensions about global economic uncertainty took a backseat. A rebound in crude prices also drove the energy sector higher, thus contributing towards the broader rally.
The Dow Jones Industrial Average (DJI) gained 0.4% and settled at 13,264.49. The Standard & Poor 500 (S&P 500) closed 0.8% higher at 1,419.04. The tech-laden Nasdaq Composite Index edged past other benchmarks once again; jumping 0.9% to finish yesterday’s trading session at 3,119.70. The fear-gauge CBOE Volatility Index (VIX) gained 0.9% and closed at 15.64. Consolidated volumes on the New York Stock Exchange, the American Stock Exchange and Nasdaq were 6.46 billion shares, lower than last year’s daily average of 7.84 billion. Advancing stocks on the NYSE clearly outpaced the decliners, as for 73% stocks that gained, only 24% edged lower. The remaining 3% of the stocks were left unchanged.
Investors were buoyed by the benchmarks’ performance as the Dow and S&P 500 notched up more records. The Dow hit its highest level since December 2007. Meanwhile, the S&P 500 climbed to levels last achieved in May 2008. Meanwhile, the Nasdaq kept hovering over the 3, 000 mark, a level which the tech-laden index last witnessed at the fag end of the Dot-com bubble. Nasdaq has also outperformed fellow benchmarks over the past few weeks. More importantly, Nasdaq was the biggest gainer among the other benchmarks during the previous quarter. While the Dow and S&P 500 scored gains of 8.1% and 12.0%, respectively, in the first quarter, the Nasdaq increased 18.7% in the same period. Additionally, while the Dow and S&P 500 enjoyed their biggest first-quarter gains since 1998, the tech-laden Nasdaq enjoyed its best-first-quarterly performance since 1991.
A few dismal reports have dampened investor sentiment over the last couple of weeks. However, the Institute for Supply Management yesterday reported an expansion of economic activity in the manufacturing sector, which lifted the broader mood.
The report by Institute for Supply Management Manufacturing Business Survey Committee stated: “The PMI registered 53.4 percent, an increase of 1 percentage point from February’s reading of 52.4 percent, indicating expansion in the manufacturing sector for the 32nd consecutive month. The Production Index increased 3 percentage points from February’s reading of 55.3 percent to 58.3 percent, and the Employment Index increased 2.9 percentage points to 56.1 percent”. Also on apositive note, 15 of the 18 industries under the survey reported an expansion. The 53.4% level was higher than consensus estimates of 53.1% and the above-50 levels continued to promise growth.
The world’s second-largest economy, China, also showed strength in manufacturing activity, though mostly it was the large factories that benefitted. The Purchasing Managers’ Index (PMI) of China reflecting conditions at large factories was up to an 11-month high of 53.1 in March, up from February’s reading of 51. The PMI reading also came ahead of consensus estimates of 50.5.
A rebound in crude prices also buoyed markets, making the energy sector one of the biggest gainers for the day. The Energy Select Sector SPDR (XLE) inched up by a percent with stocks such as ConocoPhillips (NYSE:COP), Chevron Corporation (NYSE:CVX), Transocean Ltd. (NYSE:RIG), Baker Hughes Incorporated (NYSE:BHI), Western Refining, Inc. (NYSE:WNR), Marathon Oil Corporation (NYSE:MRO) and Valero Energy Corporation (NYSE:VLO) gaining 1.1%, 1.0%, 0.9%, 1.2%, 1.7%, 1.7% and 2.2%, respectively.
However, yesterday’s gains were somewhat limited by a dismal construction spending report. The U.S. Census Bureau of the Department of Commerce reported: “Construction spending during February 2012 was estimated at a seasonally adjusted annual rate of $808.9 billion, 1.1 percent (?1.3%)* below the revised January estimate of $818.1 billion”. While construction spending receded 1.1%, consensus estimates had projected an increase of 0.7%.
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