A host of worrying economic reports failed to pull down the markets as LinkedIn made its debut on the Street and doubled its share price. Markets were also led modestly higher as initial claims declined and retailers posted better-than-expected quarter results.
The Dow Jones Industrial Average (DJIA) was up 0.4% to settle at 12,605.32. The Standard & Poor 500 (S&P 500) moved up 0.2% and closed at 1,343.60. The Nasdaq Composite Index finished the day at 2,823.31, after gaining 0.3%. The fear-gauge CBOE Volatility Index dropped down below 16. On the New York Stock Exchange, AMEX and Nasdaq, consolidated volumes remained low, at 6.2 billion shares, versus the average of 8.4 billion shares last year. On the NYSE, a couple of shares declined for every three shares that moved up.
Shares of LinkedIn helped lift the indices higher, negating the impact of weak economic data. LINKEDIN CORPORATION (NYSE:LNKD) announced its arrival into the trading arena with share prices reaching $122.70 until settling at $94.25. Investors were delighted with this performance as share prices more than doubled compared to the initial public offering price of $45 per share. This surge of 172.6% was the highest jump since Nymex Holdings recorded a 125% surge in 2006. Experts opine that the record surge in the price of LinkedIn indicates investors’ rush to own shares in social media. Chairman and Chief Investment Officer of Jacob Internet Fund, Ryan Jacob said: “To some extent, investors are buying LinkedIn because they cannot get into Facebook. People are just really desperate to get into social media”. Voicing the possibility of other social media companies joining the trading list, Scott Sweet, senior managing partner at IPO Boutique said: “With it (LinkedIn) pricing at $45 and trading at $80-plus, it now seems logical that Groupon, Twitter and Zynga should and likely will file shortly in that they were very anxiously awaiting this debut.”
Economic data painted a gloomy picture of the economic recovery and had LinkedIn not made its debut yesterday, concerns about the sluggish economic growth would have most likely dragged the benchmarks lower. Except for initial jobless claims, other data including factory activity and housing data displayed signs of weakness in the economy.
According to the Federal Reserve Bank of Philadelphia, the US mid-Atlantic region showed dismal growth in factory activity for the month of May. Business activity in the region slumped to a level of 3.9 in May from 18.5 in April. This is contrary to economists’ expectations of a jump to a level of 20.1. This survey is a measure of regional manufacturing growth and is considered to be a good gauge of general business conditions.
Meanwhile, The Conference Board’s Index of Leading Economic Indicators (LEI) dropped 0.3% to 114.0 in April, against economists’ expectations of a 0.1% increase. The index, which is used as a barometer of economic activity over a range of three to six months dropped for the first time in almost a year after rising by 0.7% in March and 0.9% in February. Ataman Ozyildirim, economist at The Conference Board said: “The U.S. LEI has been rising since March 2009, with only a brief one-month interruption in June 2010, and now, in April 2011. The U.S. CEI, a monthly measure of current economic conditions, continued to increase, supported by improving employment figures. Overall, the composite indexes still point to strengthening business conditions in the near term, although the path may be uneven.” The report is of great significance as this index, along with the coincident and lagging indexes, is used to determine the direction and stability of the economy.
Housing data, through the week, has been a disappointment and National Association of Realtors’ data on existing home sales that was released yesterday, reflected a similar trend. According to the department, existing home sales “eased 0.8% to a seasonally adjusted annual rate of 5.05 million in April from a downwardly revised 5.09 million in March, and are 12.9% below a 5.80 million pace in April 2010”.
The only economic report that added to strength in the economy was the drop in initial claims. The Labor Department reported:” In the week ending May 14, the advance figure for seasonally adjusted initial claims was 409,000, a decrease of 29,000 from the previous week’s revised figure of 438,000. The 4-week moving average was 439,000, an increase of 1,250 from the previous week’s revised average of 437,750.” Economists’ had expected unemployment benefits claims to drop to 419,000. However, claims dropped below the 400,000 mark, which is considered to be a sign that that the job market is improving.
Meanwhile, light crude prices, fur June delivery, dropped 1.7% to settle at $98.44. The weak economic reports also affected precious metals as gold and silver dropped 0.2% and 0.5% to $1,492.20 an ounce and $34.927 an ounce, respectively.
However, despite the fall in crude prices, the Energy Select Sector SPDR fund traded modestly higher. Shares from this sector like, Chevron Corp. (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), ConocoPhillips (NYSE:COP), Marathon Oil Corporation (NYSE:MRO), Transocean Ltd. (NYSE:RIG) and Western Refining Inc. (NYSE:WNR) increased 1.0%, 0.7%, 0.8%, 0.8%, 1.7% and 1.1%, respectively.
The retail sector showed signs of hope as companies like Dollar Tree, Inc. (NASDAQ:DLTR) and PetSmart, Inc. (NASDAQ:PETM) reported better-than-expected results. Shares of these companies rose by 2.9% and 7.6%, respectively.
CONOCOPHILLIPS (COP): Free Stock Analysis Report
CHEVRON CORP (CVX): Free Stock Analysis Report
DOLLAR TREE INC (DLTR): Free Stock Analysis Report
MARATHON OIL CP (MRO): Free Stock Analysis Report
PETSMART INC (PETM): Free Stock Analysis Report
TRANSOCEAN LTD (RIG): Free Stock Analysis Report
WESTERN REFING (WNR): Free Stock Analysis Report
EXXON MOBIL CRP (XOM): Free Stock Analysis Report
Zacks Investment Research
