Benchmarks ended higher on Monday buoyed by Federal Reserve Chairwoman Janet Yellen’s comment that the central bank will maintain its “extraordinary commitment” to support the economy for some more time. Investors were also buoyed by the possibility that the European Central Bank will begin a monetary stimulus program to counter effects of deflation in the euro-zone. Benchmarks had a mixed finish in the first quarter. The S&P 500 and the Nasdaq gained but the Dow ended in the red.
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The Dow Jones Industrial Average (DJI.V) gained 0.8% to close Monday’s trading session at 16,457.66. The Standard & Poor (S&P 500) too rose 0.8% to finish at 1,872.34. The tech-laden Nasdaq Composite Index went up 0.1% to 4,198.99. The fear-gauge CBOE Volatility Index (:VIX) plunged 3.7% to settle at 13.88. Total volume for the day was roughly 6.5 billion shares, lower than this month’s average of 6.9 billion. Declining stocks were outnumbered by advancing stocks on the NYSE. For 23% stocks that declined, 74% advanced.
Federal Reserve Chairwoman Janet Yellen’s comments on the economy and monetary policy boosted investor sentiment. In her first public speech at a conference in Chicago said that the central bank’s “extraordinary” commitment to support the economy is required for “some time to come”. This is because some citizens still feel the economy recovery is like a recession. Her comments allayed concerns about the possibility of a sooner-than-expected hike in interest rates.
Earlier this month, the central bank had said the economic stimulus program may end this fall and the key lending rates will then be raised six months later. The central bank also mentioned that it will rely on a ‘wide range of information’ on jobs as well as inflation and not just the unemployment rate while deciding on raising interest rates. The Federal Funds rate has been near zero since 2008 in an attempt to boost the economy.
The Federal Open Market Committee decided in its March policy meeting to ‘modestly’ reduce the pace of its bond purchase program. The central bank agreed to trim purchase of its U.S. Treasuries and mortgage-backed securities by another $10 billion starting April. This will bring the bond-buyback program to $55 billion.
Markets began the day on an upbeat note after investors anticipated that the European Central Bank may start a quantitative easing program in order to curtail the threat of deflation in the euro-zone. Euro-zone inflation dropped to its lowest level since 2009. According to preliminary estimates by Eurostat the annual inflation in March was 0.5%.
Earlier this month, the European Central Bank kept the key lending rates unchanged. ECB kept the refinancing rate at a record low of 0.25% and the deposit rate at 0%.
On the economic front, Chicago PMI numbers were disappointing as the survey by Institute for Supply Management-Chicago noted that Chicago Business Barometer declined to 55.9 in March from February’s reading of 59.8. This fall in the Chicago Purchasing Managers Index in March was more than the consensus expectation of a decline to 59.1. Drop in new orders and employment was cited to be the reasons behind this fall in the Chicago Business Barometer. However, the dismal reading hardly made any change to the bullish mood.
For the first quarter of 2014, the benchmarks finished mixed. The S&P 500 and the Nasdaq composite Index gained 1.3% and 0.5%, respectively. The S&P 500 and the Nasdaq rose for the fifth straight quarter. The gains came despite escalating political tension over Crimea, harsh winter weather that affected economic indicators and the central bank’s decision to pull back the economic stimulus program. However, the Dow lost 0.7%.
For the month, the S&P 500 and the Dow rose 0.7% and 0.8%, respectively. However, the tech-heavy Nasdaq Composite Index dropped 2.5%; its worst performance since Oct 2012. Last week, declines in bio-tech stocks had a negative impact on the Nasdaq Composite Index.
All the 10 sectors of the S&P 500 ended in the green. The Health Care Select Sector SPDR (XL.V) led the race as the sector rose 1.4%. Top holdings from the sector such as Johnson & Johnson (NYSE:JNJ), Pfizer Inc. (NYSE:PFE), Merck & Co. Inc. (NYSE:MRK), Gilead Sciences Inc. (NASDAQ:GILD) and Amgen Inc. (NASDAQ:AMGN) gained 0.8%, 0.8%, 1.4%, 3.4% and 2.3%, respectively.
The Industrials sector followed Health Care. The Industrial Select Sector SPDR (XLI) increased 1.2%. Key stocks from the sector such as United Technologies Corp. (NYSE:UTX), The Boeing Company (NYSE:BA), Union Pacific Corporation (NYSE:UNP), 3M Company (NYSE:MMM) and Honeywell International Inc. (NYSE:HON) advanced 1.8%, 0.8%, 1.6%, 1.1% and 2.1%, respectively.
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