Stock Market News for January 09, 2015 – Zacks Investment Research
Benchmarks turned positive for the year on Thursday after investors welcomed firming up of oil prices and accommodative monetary policies by the Fed and ECB. Charles Evans’ comment that the Fed may not hit 2% inflation rate target until 2018 also boosted investor sentiment. The S&P 500 posted its biggest one-day percentage gain since Dec 18, 2014. The Dow also experienced its best day on Thursday since Dec 18, 2014.
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The Dow Jones Industrial Average (DJI) gained 1.8% or 323.35 points to close at 17,907.87. The Standard & Poor 500 (S&P 500) went up 1.8% to close at 2,062.14. The tech-laden Nasdaq Composite Index closed at 4,736.19; gaining 1.8%. The fear-gauge CBOE Volatility Index (VIX) plunged 11.9% to settle at 17.01. A total of 3.9 billion shares were traded on Thursday in NYSE. Advancers outpaced declining stocks on the NYSE. For 75% stocks that advanced, 23% declined.
Investors remained enthused by the Fed’s accommodative monetary policy stance. Speaking at a press conference on Wednesday, Fed Chairwoman Janet Yellen said: “Monetary policy will still be very accommodative for a long time” after rates rise. She also said: “The timing of the initial rise in the Fed funds target as well as the path for the target thereafter are contingent on economic conditions”.
Moreover, minutes of the Fed’s December meeting showed Fed officials assured investors that the central bank will be “patient” before hiking interest rates. However, minutes stated: “Most participants thought the reference to patience indicated that the Committee was unlikely to begin the normalization process for at least the next couple of meetings.” Fed could raise its federal funds rates even with low inflation, but not before April. The central bank’s officials believe inflation rate won’t climb to Fed’s 2% target for some time due to lower energy prices and stronger dollar.
Federal Reserve Bank of Chicago President Charles Evans added that Fed may not touch its target inflation rate of 2% until 2018. Further, he believes the central bank should not hike interest rates until next year. Evans, who is a voting member of the Federal Open Market Committee this year, said: “We should be patient about maintaining the stance of our current policies”. He added: “We should be in no hurry to raise interest rates.”
Possibility of additional stimulus measures in the Eurozone after a drop in Eurozone Consumer Price Index (CPI) and a fall in German factory orders also continued to boost investor sentiment. While Eurozone CPI dropped 2% year-over-year in December, German factory orders slipped 2.4% in November for the first time in three months. This had increased pressure on European Central Bank to begin quantitative easing program at its January meeting.
ECB President Mario Draghi in a letter to European lawmakers said the apex bank will reassess its monetary-policy and may take necessary steps such as buying sovereign bonds to boost growth prospects in the Eurozone. He also said the governing council will look into the “risks to the outlook for price developments over the medium term”.
Meanwhile, possibility of oil prices firming up also boosted investor sentiment. The West Texas Intermediate (WTI) crude oil price gained for two consecutive trading sessions on Thursday. WTI crude oil price gained 0.3% to settle at $48.79 per barrel. However, Brent crude oil price decreased 0.4% to settle at $50.96 per barrel.
The Energy Select Sector SPDR (XLE) gained 2.3% on Thursday. Dow components Exxon Mobil Corporation (XOM – Analyst Report) and Chevron Corporation (CVX – Analyst Report) advanced 1.7% and 2.3%, respectively. Other key stocks from the sector including Schlumberger Limited (SLB – Analyst Report), Kinder Morgan, Inc. (KMI – Analyst Report), ConocoPhillips (COP – Analyst Report) and EOG Resources, Inc. (EOG – Analyst Report) increased 1.2%, 2.3%, 2.5% and 3.8%, respectively.
Separately, the SPDR S&P Homebuilders (XHB) gained 2.4%, the highest among the S&P 500 sectors. Key homebuilder stocks including Toll Brothers Inc. (TOL – Analyst Report), DR Horton Inc. (DHI – Analyst Report), Lennar Corp. (LEN – Analyst Report), PulteGroup, Inc. (PHM – Analyst Report) and Beazer Homes USA Inc. (BZH – Snapshot Report) gained 0.9%, 2.3%, 2.5%, 3.1% and 0.2%, respectively. Overall, all 10 sectors of the S&P 500 ended in the green.
Coming to economic data, the U.S. Department of Labor reported that initial claims for the week ending Jan 3 declined by 4,000 from the previous week’s level to 294,000. However, the number of claims for unemployment benefits was more than the consensus estimate of 290,000. This data came in after the national employment report from Automatic Data Processing, Inc. (ADP – Analyst Report) showed private sector hiring improved in December. Investors welcomed these signs of an improving labor market and now await the U.S. Bureau of Labor Statistics’ nonfarm payroll data for December to be released on Friday.
Separately, the Board of Governors of the Federal Reserve System reported that consumer credit increased by $14 billion in November, following October’s $16 billion increase. Consumer credit increased at a seasonally adjusted annual rate of 5%. Non-revolving credit increased at an annual rate of 7.5%. However, revolving credit decreased at an annual rate of 1.25%.
On the earnings front, shares of Family Dollar Stores Inc. (FDO) dropped 0.4% after the retailer posted adjusted earnings of 44 cents per share, less the Zacks Consensus Estimate of 59 cents. Separately, shares of Apple Inc. (AAPL) went up 3.8% after customers spent almost $500 million on its in-application services during the first week of 2015.
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Stock Market News for January 09, 2015 – Zacks Investment Research
