Benchmarks gained around 1% on Thursday after the Federal Reserve hinted that it will move slowly on raising interest rates. A majority of Fed officials had said on Wednesday that the economy is ready for a rate hike this year. Only 2 out of the 17 officials believe the central bank should not raise rates before next year. Meanwhile, consumer prices registered their largest gain in more than two years in May and jobless claims in mid-June declined to a near 15-year low, boosting investor sentiment. Separately, the Nasdaq closed at record high, lifted by a surge in biotech stocks.
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The Dow Jones Industrial Average (DJI) gained 1% to close at 18,115.84. The Standard & Poor’s 500 (S&P 500) also advanced 1% to 2,121.24. The tech-laden Nasdaq Composite Index closed at 5,132.95; increasing 1.3%. The fear-gauge CBOE Volatility Index (VIX) plunged 9% to settle at 13.19. A total of about 3.5 billion shares were traded on the NYSE on Thursday. Advancers outpaced declining stocks on the NYSE. For 65% stocks that advanced, 32% declined.
Benchmarks ended higher on Thursday after the Federal Reserve signaled it will hike interest rates at a slower than expected pace. Fed officials had said on Wednesday that the improving U.S. economy is strong enough to withstand one or two rate hikes this year. However, officials kept short term interest rates unchanged in the FOMC policy meeting. Fed members haven’t yet decided when to raise rates this year as the decision will depend on how the economy evolves.
Fed Chairwoman Janet Yellen had noted that the economy has “expanded moderately” following a “soft patch” in the first quarter. Harsh winter weather, strikes at Western Coast ports, stronger dollar hampering exports and decline in business investment were cited as the reasons behind the meltdown in the first quarter.
Meanwhile, investors received encouraging reports on inflation and labor market, which are taken into consideration by the central bank when decide the timing of a rate hike. According to the U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers (CPI-U) gained 0.4% in May, the biggest gain since Feb 2013. However, the increase was less than the consensus estimate of an increase of 0.5%. Excluding food and energy, the index for all items gained 0.1% last month, its smallest gain since Dec 2014.
Claims for unemployment benefits dropped last week to a near 15-year bottom. According to the U.S. Department of Labor, initial claims declined 12,000 for the week ending June 13 to 267,000, lower than the consensus estimate of 276,500. Moreover, the 4-week moving average also decreased 2,000 from previous week’s level to 276,750.
Separately, the Philadelphia Federal Reserve’s manufacturing index surged to 15.2 in June from 6.7 in May. Additionally, the Conference Board’s leading economic index increased 0.7% in May after it rose a 0.7% in April.
Gains in biotech shares had a positive impact on the Nasdaq. Biotech stocks such as Gilead Sciences Inc. (GILD – Analyst Report), Regeneron Pharmaceuticals, Inc. (REGN – Analyst Report), Biogen Inc. (BIIB – Analyst Report), Amgen Inc. (AMGN – Analyst Report) and Celgene Corporation (CELG – Analyst Report) increased 1.9%, 2.9%, 2.7%, 2.9% and 4.2%, respectively. The iShares Nasdaq Biotechnology (IBB) gained 3.1%, while the broader Health Care Select Sector SPDR (XLV) advanced 1.4%, the highest among the S&P 500 sectors.
High-yielding stocks from the utilities sector gained for the second consecutive trading day in anticipation of slower-than-expected rate hikes. The Utilities Select Sector SPDR (XLU) advanced 1.3% and was the second biggest gainer among the S&P 500 sectors. Key utilities stocks including NextEra Energy Inc (NEE – Analyst Report), Exelon Corporation (EXC – Analyst Report), Southern Company (SO – Analyst Report), PG&E Corporation (PCG – Analyst Report) and Duke Energy Corporation (DUK – Analyst Report) increased 1.6%, 0.2%, 1.5%, 1.8% and 2%, respectively. Overall, 9 out of 10 sectors of the S&P 500 ended in the green.