The S&P 500 closed at another record high and fellow benchmarks ended in the green, while investors were left searching for clues about the timing of the Fed’s tapering of its stimulus plan. The S&P 500 was somewhat boosted by SYSCO Corporation’s (NYSE:SYY) announcement that it was purchasing rival U.S. Foods. The materials sector was the biggest gainer among the S&P 500 industry groups while utilities stocks lost the most.
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The Dow Jones Industrial Average (DJI) gained about 0.03% to close the day at 16025.53. The S&P 500 increased 0.2% to finish yesterday’s trading session at 1808.37. The tech-laden Nasdaq Composite Index increased 0.2% to end at 4068.75. The fear-gauge CBOE Volatility Index (VIX) dropped 2.2% to settle at 13.49. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 5.1 billion shares. Declining stocks were in line with the advancers. For 48% shares that declined, and identical percentage advanced.
A number of speeches from some of major Federal Reserve officials on Monday hinted that the Fed may taper its stimulus program sooner than later. The stimulus program has played a major role in the equities’ bull run. A chain of favorable economic reports published of late suggests that the economy is gaining strength. The Fed has often stated that the taper decision centers around whether economic indicators were strong enough.
In his remarks prepared for his speech at the DTN/The Progressive Farmer Ag Summit in Chicago, Richard Fisher, President of Federal Reserve Bank of Dallas, said: “It is time to taper”. Fisher said that the cost of the stimulus program “far exceeds” its advantages, Fisher suggested easing it “at the earliest opportunity” and communicating a transparent method along with a defined date to end the $85 billion bond purchase program. He said such a step would help markets to digest any further changes in Fed’s policy in due course of time..
The President of St. Louis Federal Reserve Bank, James Bullard unexpectedly said this would be the right time for a “small taper”. He joined Fed Presidents Richard Fisher and Jeffrey Lacker in voicing his opinion for reducing the central bank’s stimulus program. Bullard said reducing the stimulus program at the FOMC meeting scheduled to be held on 17th and 18th December.
Such a move would provide flexibility to the Federal Reserve to change course, if inflation continues to remain below 2%. Bullard said: “If we taper soon, I actually think financial markets should be able to digest it…We would be tapering in response to stronger economic data and therefore I think markets can be a lot more comfortable with that”.
Also, President of the Federal Reserve Bank of Richmond, Jeffrey Lacker said: “We need to take very good care that we’re clear and market expectations are aligned with us on the path of short-term rates”. Lacker has said in the past that the central bank should start reducing its 15-month old stimulus program between December and March.
Shares of Sysco Foods jumped 9.7% to $37.62 per share, after it announced it will acquire rival US Foods for nearly $3.5 billion in cash. As per the terms and conditions of the agreement, Sysco will pay the $3 billion in common stock and the rest of the $500 million will be paid in cash
Shares of McDonald’s Corporation (NYSE:MCD) dropped 1.1% to $95.7, after the fast food restaurant chain reported weaker-than-anticipated global sales figures in its well established restaurants for November.
On the international front, the annual consumer inflation of China declined unexpectedly in November. This development eases markets fears of a sudden tightening in monetary policy. The relevant authorities will be meeting this week to plan policies and reform priorities for the year 2014. The annual consumer inflation slowed to 3% in November compared to an eight-month high figure of 3.2% as per the National Bureau of Statistics on Monday. Also, producer prices dropped 1.4% in November from the previous year. Producer prices have now declined for twenty one months in a row.
The materials sector was the biggest gainer among the S&P 500 industry groups on Monday. The materials SPDR (XLB) gained 0.5%. Stocks such as E I Du Pont De Nemours And Co (NYSE:DD), The Dow Chemical Company (NYSE:DOW), Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), LyondellBasell Industries NV (NYSE:LYB), and Ecolab Inc. (NYSE:ECL) increased 0.1%, 3.9%, 1.1%, 0.3% and 0.1%, respectively.
The utilities sector was the biggest loser among the S&P 500 industry groups on Monday. The Utilities SPDR (XLU) lost 0.6%. Stocks such as Duke Energy Corp (NYSE:DUK), Dominion Resources, Inc. (NYSE:D), The Southern Company (NYSE:SO), NextEra Energy, Inc. (NYSE:NEE), and American Electric Power Company Inc. (NYSE:AEP) decreased 0.5%, 1.1%, 0.9%, 0.6%, and 0.8%, respectively.
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