Benchmarks ended mostly in the red after gaining for four consecutive days as materials stocks finished in the negative territory. Moreover, dismal outlook from United Parcel Service had a negative impact on benchmarks. However, benchmarks ended in the green over the week for the first time in four weeks mainly due to the European Central Bank’s announcement of monetary stimulus on Thursday.
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The Dow Jones Industrial Average (DJI) declined 0.8%, or 141.38 points, to close at 17,672.60. The Standard & Poor 500 (S&P 500) lost almost 0.6% to close at 2,051.82. However, the tech-laden Nasdaq Composite Index closed at 4,757.88; rising 0.2%. The fear-gauge CBOE Volatility Index (VIX) rose 1.2% to settle at 16.66. A total of about 6.4 billion shares were traded on Friday, lower than daily monthly average of 7.3 billion. Decliners outpaced advancing stocks on the NYSE. For 53% stocks that declined, 43% advanced.
On Friday, Goldman Sachs Group, Inc. (GS) reduced its outlook for base metal prices for 2015. Among others, Goldman Sachs forecasted that average copper price and aluminum price in 2015 will be at $5,542 per tonne and $1,788 per tonne, compared to its earlier forecast of $6,400 and $2,075, respectively. The bank said: “The primary reason for the changes to our forecasts is cost deflation – driven by a combination of actual and anticipated U.S. dollar strength, cheaper energy and other input costs, and our expectation of an improvement in mining productivity.”
These dismal outlooks dragged down Materials Select Sector SPDR (XLB) 1.6% on Friday. The sector was the biggest loser among the S&P 500 sectors. Key materials stocks including Freeport-McMoRan Inc. (FCX – Analyst Report), Alcoa Inc. (AA – Analyst Report), The Dow Chemical Company (DOW – Analyst Report) and Monsanto Company (MON – Analyst Report) lost 3.9%, 1.8%, 1.7% and 1.3%, respectively. Nine out of 10 S&P 500 sectors registered losses on Friday.
Meanwhile, shares of United Parcel Service, Inc. (UPS – Analyst Report) plunged 9.9% after forecasting fourth quarter adjusted earnings per share of $1.25, compared to market expectation of $1.47. However, the expected earnings figure is in line with the Zacks Consensus Estimate. The company said: “Operating profit was negatively impacted by higher-than-expected peak-related expenses.” It also added: “Clearly, our financial performance during the quarter was disappointing.” United Parcel Service was the worst performer among the S&P 500 companies on Friday.
Moreover, McDonald’s Corp.’s (MCD – Analyst Report) shares declined 1.5% after reporting fourth quarter revenues of $6.57 billion, missing the Zacks Consensus Estimate of $6.72 billion. Revenues also declined 7% year on year mainly due to sluggish performances in all its regions, which in turn were negatively affected by supplier issues in China.
However, shares of E*TRADE Financial Corporation (ETFC – Analyst Report) surged 8.4% after announcing fourth quarter earnings per share of 26 cents, beating the Zacks Consensus Estimate of 23 cents. Additionally, Starbucks Corporation’s (SBUX – Analyst Report) shares jumped 6.6% to its all time high of $88.22 after declaring 16% rise in adjusted fiscal first quarter earnings per share to 80 cents. The company witnessed its most successful holiday performance in more than 40 years. Both the companies were the best performers among the S&P 500 companies.
On economic front, the National Association of Realtors reported that existing home sales gained 2.4% in December to seasonally adjusted annual rate of 5.04 million. However, the figure declined 3.5% year-over-year and also missed the consensus estimate of 5.07 million. Moreover, the flash Markit manufacturing purchasing managers index declined from 53.9 in December to 53.7 in January, witnessing its worst reading in a year.
Over the week, the Dow, S&P 500 and Nasdaq gained 0.9%, 1.6% and 2.7%, respectively.
Benchmarks ended in the green for the week banking on the European Central Bank’s (ECB) announcement of a quantitative easing program worth about 1.1 trillion euros to address the risks of deflation in the Eurozone. On Thursday, ECB President Mario Draghi said the bank will buy 60 billion euros a month in assets including both government and private sector bonds, and securities issued by European organizations.
Moreover, encouraging earnings results including that from Southwest Airlines Co. (LUV – Analyst Report), KeyCorp. (KEY – Analyst Report), Netflix, Inc. (NFLX – Analyst Report), Halliburton Company (HAL) and UnitedHealth Group Incorporated (UNH) boosted benchmarks. Meanwhile, the Bank of Canada’s surprise rate cut added to the bullish sentiment. The Bank of Canada trimmed its interest rate by 25 basis points to 0.75% due to continuous slump in oil prices.