Stock Market News for June 18, 2014 – Zacks Investment Research

Gains in financial and small-cap stocks helped benchmarks shrug off initial losses to end in the green. Stocks had opened in the red owing to dismal housing data. However, improved consumer price data firmed up the US dollar, also leading to expectations of a rate hike. Markets secured their third-straight positive finish on a day when the two-day FOMC meeting commenced. Gains were kept in check though, owing to concerns over Iraq sectarian clashes.

For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article

The Dow Jones Industrial Average (DJI) gained about 0.2% to close at 16,808.49. The Standard & Poor 500 (S&P500) was up over 0.2% to settle at 1,941.99. The tech-heavy Nasdaq Composite Index gained roughly 0.4% and finished yesterday’s session at 4,337.23. The fear-gauge CBOE Volatility Index (VIX) dropped 4.7% to settle at 12.06. Total volume on the New York Stock Exchange (NYSE) was 2.97 billion. For 60% stocks that gained on the NYSE, 37% stocks declined.

Small-cap stocks outperformed the broader markets yesterday. The Russell 2000 (RUT) added 0.8% to jump to its best level since April 3.

The day’s events mostly centered on the inflation data. The U.S. Bureau of Labor Statistics reported the sharpest rise in Consumer Price Index for All Urban Consumers (CPI-U) since Feb 2013. The index jumped 0.4% in May, topping consensus estimates of a 0.2% gain. This also follows the 0.3% increase in April. Over the last 12 months, the index has gained 2.1% before seasonal adjustments. The index for all items excluding food and energy improved 0.3%, the biggest gain since Aug 2011.

The report led to the firming of the dollar. The greenback strengthened by 0.2% to $1.35446 versus the euro. Higher inflation also resulted in investors selling U.S. government debt, dragging the U.S. Treasuries’ prices lower. The 10-year Treasury note shot up as high as 2.65%. Treasury two-year note yields hit the best level since September.

Investors were optimistic that the Federal Reserve may now find a reason to hike interest rates. While some analysts agree that a rate hike may come into effect sooner than expected, other are of the view that the central bank may refrain from hiking rates in the short term.

However, Federal Open Market Committee is expected to trim its bond buyback plan again by another $10 billion at the end of its two-day policy meeting. This would bring down the original $85 billion bond repurchase plan down to $35 billion a month.

Financials emerged the biggest gainer among the 10 S&P industry groups. The Financial Select Sector SPDR (XLF) gained over 1%. Key financial stocks such as The Goldman Sachs Group, Inc. (NYSE:GS), Morgan Stanley (NYSE:MS), JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Company (NYSE:WFC), U.S. Bancorp (NYSE:USB) and UBS AG (NYSE:UBS) and Bank of America Corporation (NYSE:BAC) gained 1.4%, 2.5%, 1.0%, 1.1%, 0.9%, 0.6% and 2.0%, respectively.

Investors also tracked developments related to the sectarian clashes in Iraq. This factor kept the gains in check. The Shiite group reportedly ignored Western calls for a discussion with the Sunnis to curb the uprising in the northern part of the country. Wall Street Journal reported that militant rebels and government forces continued their fight and killed 28 ISIS fighters. Iraq accounts for 3.3 million barrels of crude every day. U.S. crude prices dropped 0.5% to $106.31 per barrel.

Markets had also been initially affected by dismal housing data as both housing starts and building permits suffered larger-than-expected decline. The U.S. Census Bureau and the Department of Housing and Urban Development announced building permits dropped 6.4% from April to a seasonally adjusted annual rate of 991,000 in May. Building permits were expected to come in at 1,043,000. Privately-owned housing starts declined 6.5% in May to a seasonally adjusted annual rate of 1,001,000. This figure was also lower than consensus estimate of housing starts staying at a level of 1,033,000.

The housing sector nonetheless finished in the green with SPDR S&P Homebuilders ETF (XHB) gaining 0.4%. Key housing stocks including Lennar Corp. (NYSE:LEN), PulteGroup, Inc. (NYSE:PHM), Beazer Homes USA Inc. (NYSE:BZH) and KB Home (NYSE:KBH) added 1.3%, 0.6%, 0.3% and 0.7%, respectively.

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Stock Market News for June 18, 2014 – Zacks Investment Research

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