Markets’ volatile run on Friday ended with the S&P 500 and Nasdaq ending in the red, while the Dow managed to close in the positive zone. Investors weighed lower-than-expected domestic vehicle sales and Fed official Charles Plosser’s warning of “aggressive” rate hike against Fed chairman Ben Bernanke’s defense of the central bank’s economic measures. The S&P 500 ended in the red for the second consecutive day, after ending 2013 with multi-year record yearly gains.
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The Dow Jones Industrial Average gained 0.2% to end at 16,469.99. The Standard & Poor 500 (S&P 500) finished at 1,831.37, a marginal decline of 0.03%. The tech-laden Nasdaq Composite Index too ended in negative territory as it dropped 0.3% to 4,131.91. The fear-gauge CBOE Volatility Index ended at 13.76, down 3.3%. About 4.61 billion shares changed hands on the US exchanges, lower than the average. The advancers however edged past the decliners on the New York Stock exchange (NYSE), as for 62% stocks that gained, 35% stocks ended lower.
Markets kept moving up and down as investors had three key developments to focus on. Looking at the vehicle sales numbers first, automakers like General Motors Company (NYSE:GM), Ford Motor Co. (NYSE:F), Toyota Motor Corporation (NYSE:TM) and Chrysler Group LLC hardly had any major sales data to lift sentiment. These big four automakers’ dismal sales numbers worried investors as they are a strong indicator of consumer confidence.
General Motors reported a 6.3% decline in U.S. vehicle sales to 230,157 units in December. Analysts had been expecting a 0.8% gain. Ford said net sales in December had increased 2%. However, this was well short of analysts’ expectations of a 5.9% jump. Toyota’s 1.7% decline in sales numbers was also contrary to analysts’ anticipation of a gain. Privately-owned Chrysler Group’s 5.7% gain in sales also lagged expectations.
Shares of General Motors and Toyota dropped 3.75% and 0.1%, respectively. Ford managed a gain of 0.5%. As for other stocks in the automobile sector, Tesla Motors Inc (NASDAQ:TSLA), Volkswagen AG (ADR) (OTC:VLKAY) and Daimler AG (USA) (OTC:DDAIF) lost 0.4%, 1.0% and 0.2%, respectively.
Markets were also jittery after Philadelphia Fed President Charles Plosser warned there was a possibility that the Federal Reserve may “aggressively” hike rates, if banks needed to release reserves. Known for hawkish views, Plosser said the Fed faces “immense” challenges” as it starts tapering the asset purchase plan. In fact, he said: “We like to believe that everything is going to be gradual, everything is going to be smooth, and everything is going to be hunky-dory…History does suggest that the Fed, as an institution, is oftentimes late when it comes to tightening”.
Later on, Fed Chariman Ben Bernanke defended the central bank’s asset-purchase program in his speech at the American Economics Association conference. He said: “Economic growth might well have been considerably weaker, or even negative, without substantial monetary policy support’’. He also commented: “We took extraordinary measures to meet extraordinary economic challenges and we had to explain those measures to earn the public’s support and confidence”. Bernanke also sounded positive about the U.S. economy this year as he expected federal spending cuts and tax increases causing a lesser drag. In addition, he noted that the finances have improved and home sales outlook looks promising.
As investors kept weighing these factors, markets endured a choppy session and finally closed mixed. The S&P 500 however suffered its second consecutive decline. The dismal finishes of the benchmarks come after they recorded multi-year annual gains last year. The Dow signed off 2013 with gains of 26.5%, its best yearly performance since 1995. The S&P 500 gained 29.6% for the year, the best since 1997. The Nasdaq outperformed fellow benchmarks, gaining 38.3% in 2013. This was its best annual performance since 2009.