Markets enjoyed back-to-back gains as hopes of coordinated action by central banks boosted investor sentiment all through the day on Friday. G20 sources said central banks might be ready to step in to provide liquidity after gauging the consequences of the Greek elections. Additionally, the Bank of England also talked about providing liquidity to the economy. These catalysts took the upper hand over any apprehensions ahead of the crucial Greek vote, and eventually benchmarks also enjoyed two consecutive weeks of gains.
The Dow Jones Industrial Average (DJI) soared 115.26 points or 0.9% to finish at 12,767.17. The Standard & Poor 500 (S&P 500) inched up a percent to close 13.74 points higher at 1,342.84. The tech-laden Nasdaq Composite Index jumped 1.3% and ended yesterday’s trading session at 2,872.80. The fear-gauge CBOE Volatility Index (VIX) dropped 2.6% and settled at 21.11. The Street had a busy day with consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq at roughly 7.5 billion shares, well above this year’s daily average of 6.84 billion. Advancers outpaced the decliners, as for every stock that declined on the NYSE, more than a couple of stocks moved up.
The Dow not only registered back-to-back finishes, the blue-chip index also registered triple-digit gains on both these days. However, only five of the 30 Dow components had to close in the red with The Home Depot, Inc. (NYSE:HD) being the biggest loser registering only a 0.6% decline. As for the remaining 25 components or the gainers, American Express Company (NYSE:AXP), Bank of America Corporation (NYSE:BAC), Chevron Corporation (NYSE:CVX), International Business Machines Corporation (NYSE:IBM), Microsoft Corporation (NASDAQ:MSFT) led the advancers as they jumped 2.2%, 3.1%, 2.4%, 2.1% and 2.3%, respectively.
Back-to-back gains were not only restricted to Friday’s session, but the indices also registered consecutive weekly gains. The week ending June 8th had seen the benchmarks recording their best weekly gains this year. Those gains were perfectly backed up by another weekly gain this time. The Dow, S&P 500 and the Nasdaq jumped 1.7%, 1.3% and 0.5%, respectively, for the week.
The benchmarks did had a volatile run through the week. However, gains on the final two days of the week ensured a winning finish. The fear-gauge index also reflected the volatility, as it swung between a red and green finish through last week, except for the final two days. The VIX gained on Monday, dropped on Tuesday and again moved up on Wednesday, before moving down on the last two days. The 5-day change for the VIX stands at a mere negative 0.6%.
Gains on the last two days, were largely result of hopes for fresh economic stimulus that lifted the benchmarks. According to a report on Thursday, G20 officials said central banks across the globe were ready to provide liquidity following the results of the Greek elections. Reuters quoted a G20 aide as saying that: “The central banks are preparing for coordinated action to provide liquidity”. The report came in late on Thursday and instantly caused a steep rise in benchmarks. The momentum carried over into Friday, as investors grew increasingly hopeful about fresh monetary stimulus which would help stabilize the flagging economy.
The report came at a time when certain U.S. Fed presidents have been providing optimism to investors, speaking about the possibility of fresh monetary stimulus. Chicago Federal Reserve Bank President Charles Evans and the Atlanta and San Francisco Fed presidents have been speaking about injecting more liquidity into the system. However, Fed Chairman Ben Bernanke did not say anything definite on monetary policy during his last congressional testimony.
Nonetheless, news from across the Atlantic helped boost the benchmarks after European Central Bank (ECB) President Mario Draghi said the bank is ready to support the region’s banking system. Draghi said: “The eurosystem will continue to supply liquidity to solvent banks where needed”. The Group of 20 (G20) is to meet very soon, and Draghi’s comments came just ahead of this. Separately, UK Chancellor George Osborne along with Bank of England Governor Sir Mervyn King announced a near ?100 billion financial plan to boost the economy. Osborne acknowledged the need to “deploy new firepower” and that the Bank of England was to start providing loans at a cheaper rate.
On the domestic front, these positives helped the financial sector end decently higher. The Financial Select Sector SPDR (XLF) jumped 1.5% and stocks including Citigroup Inc. (NYSE:C), Goldman Sachs Group, Inc. (NYSE:GS), Morgan Stanley (NYSE:MS) and UBS AG (USA) (NYSE:UBS) gained 1.4%, 2.0%, 2.7% and 2.2%, respectively.
However, domestic economic readings were far from encouraging. The Empire State Manufacturing Survey by the Federal Reserve Bank of New York noted a downtrend. The report stated: “The general business conditions index fell fifteen points, but remained positive at 2.3. The new orders index declined six points to 2.2, and the shipments index fell a steep nineteen points to 4.8”. However, the report noted: “The June Empire State Manufacturing Survey indicates that manufacturing activity expanded slightly over the month”. Separately, a report by the Board of Governors of the Federal Reserve System reported that industrial production dropped 0.1% in May. Further, the Thomson Reuters/University of Michigan consumer sentiment index dropped significantly to 74.1 in early June from 79.3 in May 77.8 in early May.
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