Setback in bailout talks between Greece and its creditors over the weekend continued to negatively impact benchmarks on Tuesday. The lack of progress in Greek debt talks raised fears among investors of a possible default by Greece and the country’s exit from the Eurozone. Meanwhile, manufacturing activity worsened slightly for New York manufacturers and decline in U.S. industrial production in May added to the bearish sentiment.
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The Dow Jones Industrial Average (DJI) declined 0.6% to close at 17,791.17. The Standard & Poor’s 500 (S&P 500) decreased 0.5% to 2,084.43. The tech-laden Nasdaq Composite Index closed at 5,029.97; decreasing 0.4%. The fear-gauge CBOE Volatility Index (VIX) surged 11.7% to settle at 15.39. A total of about 5.84 billion shares were traded on Monday, lower than this month’s average of 5.98 billion. Decliners outpaced advancing stocks on the NYSE. For 62% stocks that declined, 34% advanced.
Breakdown in cash-for-reform talks between Greece and its European creditors over the weekend rattled investors. The European Commission warned that talks failed due to “significant gap between the plans of the Greek authorities and the joint requirements of the commission, European Central Bank and IMF.”
Greece’s creditors were in talks to extend Greece’s bailout program until the end of Mar 2016 in return for pension cuts and tax hikes to be implemented by Athens. However, Greek Prime Minister Alexi Tsipras refused to implement pension reforms and tax increases to achieve budget surpluses as demanded by Greece’s lenders. He said: “One can only see a political purposefulness in the insistence of creditors on new cuts in pensions after five years of looting under the bailouts”.
Meanwhile on the domestic front, the Board of Governors of the Federal Reserve System reported a decrease in industrial production. The report stated industrial production fell 0.2% in May after decreasing 0.5% in April. This decline in industrial production in May was in contrast to the consensus estimate of an increase by 0.2%. Separately, capacity utilization decreased to 78.1%, while the consensus estimated it would remain flat.
Additionally, the Empire State Manufacturing Survey Index came in at a negative 1.98 in June. The reading was in contrast to the consensus estimate expecting an increase to 5.55. This indicated that manufacturing activity worsened slightly for New York manufacturers. On the brighter side, the NAHB/Wells Fargo Housing Market index increased to 59 in June, a nine-month high.
Monday’s losses were broad based with 9 out of 10 sectors of the S&P 500 ending in the red. The Industrial Select Sector SPDR (XLI) declined 0.8%, the highest among the S&P 500 sectors. Key holdings from the industrial sector including General Electric Company (GE – Analyst Report), The Boeing Company (BA – Analyst Report), Caterpillar Inc. (CAT – Analyst Report), United Parcel Service, Inc. (UPS – Analyst Report) and Danaher Corp. (DHR – Analyst Report) decreased 0.7%, 0.4%, 0.8%, 0.1% and 0.7%, respectively.
The Consumer Staples Select Sector SPDR ETF (XLP) dropped 0.7% and was the second biggest loser among the S&P 500 sectors. Key consumer staples stocks including The Procter & Gamble Company (PG – Analyst Report), The Coca-Cola Company (KO – Analyst Report), Wal-Mart Stores Inc. (WMT – Analyst Report), Philip Morris International, Inc. (PM – Analyst Report) and Pepsico, Inc. (PEP – Analyst Report) decreased 0.9%, 0.9%, 0.7%, 0.7% and 1.2%, respectively.
The healthcare sector bucked the declining trend and ended in the green, boosted by gains in Cigna Corp. (CI – Analyst Report). Shares of Cigna soared 11.7% after Anthem, Inc (ANTM – Analyst Report) offered to acquire Cigna for about $45 billion or $175 per share. However, Cigna rejected Anthem’s takeover bid. The broader Health Care Select Sector SPDR (XLV) gained 0.1%.
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