View that Federal Reserve’s tapering may happen sooner than later. Friday’s nonfarm payroll reports will be under limelight for further hints on Fed’s taper. The Dow and the S&P 500 have extended losses for the fifth successive day. Consumer discretionary sector was the biggest gainer among the S&P 500 industry groups while financials lost the most.
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) lost about 0.4% to close the day at 15821.51. The S&P 500 declined 0.4% to finish yesterday’s trading session at 1785.03. The tech-laden Nasdaq Composite Index decreased 0.1% to end at 4033.16. The fear-gauge CBOE Volatility Index (:VIX) rose 2.6% to settle at 15.08. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 5.7 billion shares. Declining stocks outnumbered the advancers. For 64% shares that declined, only 33% advanced.
A series of economic reports yesterday have increased expectations of the Federal Reserve’s taper on stimulus program to appear on the table soon. After yesterday’s positive GDP reports beat expectations, along with encouraging initial claims numbers indicating strong economic growth at 3.6% rate have increased investors’ concerns on Fed’s next move.
The Gross Domestic Product ( GDP) report showed that the U.S. economy displayed growth of 3.6% in the third quarter. This was significantly higher than consensus estimate of 3%. It was also appreciably more than the figure of 2.8% recorded in the previous estimate of the third quarter. The primary factors which contributed towards GDP came from private inventory investment, personal consumption expenditures (:PCE), exports, non-residential fixed investment, and state and local government spending. The acceleration in real GDP growth in the third quarter primarily showed a boost in the private inventory investment along with negative acceleration in imports and a surge in state and local government spending that were partly offset by negative acceleration in exports, PCE, and nonresidential fixed investments.
Coming to another government data, The U.S. Department of Labor released initial jobless claims numbers. According to the report, initial claims dropped 23,000 to 298,000 from the prior week’s revised figure of 321,000. This was considerably below the consensus estimate of 329,000.the four-week moving average was 2,796,500 a decline of 32,500 from the preceding week’s revised average of 2,829,000.
On the contrary, according to the U.S. Department of Commerce, new orders in October for manufactured goods decreased 0.9% to $486.9 billion. It was also below the consensus estimate of 0.8% expected decline. Shipments increased 0.1% to $489.3 billion while unfilled orders rose 0.4% to $1,046.2 billion. Inventories increased 0.1% to $633.5 billion. This was seen to be at the highest level since the series was first published on a NAICS basis and followed a 0.3% September increase thereafter.
The Institute for Supply Management, a trade group reported Monday that factory activity increased in the previous month at the maximum pace considering the past two and a half years’ progress. The survey also showed there are signs of improvement in the sixth consecutive month.
The Federal Reserve has previously said in many instances, the taper on stimulus program will be initiated only after there are clear signs of growth in the economy. If we go through the fed’s minutes which took place nearly two weeks ago. The minutes noted: “Many members stressed the data-dependent nature of the current asset-purchase program…Some pointed out that, if economic conditions warranted, the Committee could decide to slow the pace of purchases at one of its next few meetings".
Preceding the minutes of the Fed, a week earlier to it Janet Yellen had said: “I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy…I consider it imperative that we do what we can to promote a strong recovery“. Speaking at a hearing before the Senate Banking Committee, Yellen said: “It’s important not to remove support, especially when the recovery is fragile and tools available to monetary policy should the economy falter, are limited given that short-term interest rates are at zero.”
This was followed by Ben Bernanke’s comments wherein he supported Yellen’s stance on monetary stimulus. Bernanke said: "The FOMC remains committed to maintaining highly accommodative policies for as long as they are needed". "I agree with the sentiment, expressed by my colleague Janet Yellen at her testimony last week that the surest path to a more normal approach to monetary policy is to do all we can today to promote a more robust recovery," he added.
The nonfarm payroll report awaited on Friday will provide further transparency on what to expect on Fed’s taper decision upon its $85 billion bond purchase program. Many market watchers might be expecting the Fed’s next move on tapering its bond buying in March. Yet we can’t eliminate the Federal Reserve previous announcements to reduce its bond buying program when certain economic measures satisfy targeted expectations, which include a decrease in the U.S. unemployment rate as well.
The consumer discretionary sector was the biggest gainer among the S&P 500 industry groups on Thursday. The Consumer Discretionary SPDR ( XLY) gained 0.1%. Stocks such as Comcast Corporation (NASDAQ:CMCSA), The Walt Disney Company (NYSE:DIS), The Home Depot, Inc. (NYSE:HD), Ford Motor Company (NYSE:F), and Time Warner Inc. (NYSE:TWX) increased 0.4%, 0.4%, 0.2%, 0.7%, and 0.2%, respectively.
The financials sector was the biggest loser among the S&P 500 industry groups on Thursday. The Financials SPDR ( XLF) lost 0.9%. Stocks such as JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Co (NYSE:WFC), Berkshire Hathaway Inc. (NYSE:BRK.B), Bank of America Corp (NYSE:BAC), and Citigroup Inc. (NYSE:C) decreased 2.4%, 1.1%, 0.3%, 1.3%, and 1.9%, respectively.