Benchmarks ended mostly in the red on Tuesday following a cautious stance among investors ahead of the release of major economic reports this week. Decline in oil prices also had a negative impact on investor sentiment. However, all the key U.S. indexes registered monthly gains with the Dow and S&P 500 posting monthly rise for four consecutive months and third straight months, respectively.
The Dow Jones Industrial Average (DJI) decreased 0.5%, to close at 17,787.13. The S&P 500 fell 0.1% to close at 2,096.95. However, the tech-laden Nasdaq Composite Index closed at 4,948.06, gaining 0.3%. The fear-gauge CBOE Volatility Index (VIX) increased 8.2% to settle at 14.19. A total of around 8.2 billion shares were traded on Tuesday, higher than the last 20-session average of 7 billion shares. Advancers outpaced declining stocks on the NYSE. For 52% stocks that advanced, 45% declined.
On the last trading day of May, investors remained cautious as a favorable housing and consumer spending data raised a sooner-than-expected rate hike chances. The S&P/Case-Shiller Home Price Index revealed that 20-City composite index, the leading measure of U.S. home prices, rose 0.9% in March, significantly higher than only a 0.2% rise in February. The index also increased 5.4% year-over-year in March, in line with February’s gain.
The U.S. Department of Commerce reported that personal income increased by 0.4% or $69.8 billion and the disposable personal income (DPI) also advanced 0.5% or $63.5 billion in April. Personal spending increased 1% in April, registering its highest percentage rise in nearly seven years and was higher than the consensus estimate of 0.7% rise.
Further, the U.S. Department of Commerce also reported that the personal consumption expenditure price index (PCE) rose 0.6% in April, in contrast to March’s decrease of 0.1%. Core PCE increased 0.2%, in line with the consensus estimate. It was also more than the March’s rise of 0.1%.
However, the Conference Board reported that Consumer Confidence Index declined to 92.6 in May from 94.7 in April. The reading was also less than the consensus estimates of 96.5.
Rising possibilities for an immediate rate hike following encouraging consumer spending and housing data had a broad-based negative impact on the markets. The Consumer Staples Select Sector SPDR (XLP) decreased 0.6% and was biggest decliner among S&P 500 sectors. Key consumer staples stocks including Coca-Cola Company (KO), Procter & Gamble Company (PG), Pepsico, Inc. (PEP) and Constellation Brands Inc. (STZ) fell 0.4%, 0.5%, 0.8% and 3%, respectively.
Additionally, oil prices declined yesterday following comments from UAE Oil Minister Suhail bin Mohammed al-Mazroui and stronger dollar. Al-Mazroui said that UAE is “optimistic” regarding the oil markets and “are seeing that the market is correcting upward.” His comments reduced possibilities of production freeze. Also, dollar strengthened following rising chances of a sooner-than-expected rate hike, which in turn dragged oil prices downward. The U.S. Dollar Index (DXY) gained more than 0.05% to reach an intra-day high of 95.84.
However, reports showed that crude inventories in the delivery hub of Cushing, Oklahoma have decreased by 686,600 barrels last week. While WTI crude declined 0.5% to $49.10 a barrel, Brent crude rose 0.7% to $49.69 per barrel. Decrease in WTI oil prices led the Energy Select Sector SPDR (XLE) to fall 0.4%. Dow components Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX) fell 1.1% and 1%, respectively.
The Materials Select Sector SPDR ETF (XLB) decreased 0.5% and was the second biggest loser among the S&P 500 sectors. Key components from materials sector including Dow Chemical Company (DOW), Ecolab Inc. (ECL), E. I. du Pont de Nemours and Company (DD) and PPG Industries, Inc. (PPG) 1.8%, 1.6%, 0.9%, 2.6% and 0.9%, respectively.
For the month, the Dow, S&P 500 and Nasdaq advanced 0.1%, 1.5% and 3.6%, respectively. Technology sector was the biggest gainer during the month, while energy stocks were biggest laggards.
Meanwhile, FOMC’s minutes, higher-than-expected economic data and Fed officials’ comments boosted June rate hike chances, which weighed on investor sentiments. However, immediate rate rise possibilities pushed financials stocks upward and eventually had broad-based positive impact on markets.
Better-than-expected earnings results of NVIDIA Corporation (NVDA) and Electronic Arts Inc. (EA) boosted tech stocks last month.
Oil prices rose in May, registering four straight months rise following multiple disruptions in global crude production. Despite both WTI and Brent crude rising 7% and 3%, respectively, energy stocks ended in the red for the month.
In company news, Monsanto Company’s (MON) shares advanced on news that Bayer AG (BAYRY) has offered $62 billion or $122 per share to acquire Monsanto. Moreover, Sysco Corporation (SYY), Pfizer Inc (PFE), Time Warner Inc. (TWX), Home Depot, Inc. (HD) and Wal-Mart Stores Inc’s (WMT) posted better-than-expected earnings results.
However, Priceline Group Inc (PCLN), Merck & Co. Inc. (MRK), Target Corp (TGT), Walt Disney Company (DIS), Macy’s, Inc. (M) and Kohl’s Corporation (KSS) registered weaker than expected quarterly earnings results.
In economic news, Consumer Price Index (CPI), Core CPI, housing starts, building permits, industrial production, capacity utilization, ISM Services Index and new orders for manufactured goods increased. New home sales posting its highest monthly percentage rise in 24 years. Pending Home Sales Index, durable orders and mortgage application volume increased and initial claims decreased. But, ISM manufacturing index and non-farm business sector labor productivity decreased.
Meanwhile, the U.S. economy created a total of 160,000 jobs in April, significantly lower than the consensus estimate of 203,000 and March’s tally of 208,000. The unemployment rate in April was in line with the consensus estimate and March’s rate of 5%.
Separately, during the month Apple Inc (AAPL) hit its worst closing level since June 2014, following concerns over a slump in iPhone sales. However, shares of Apple increased after in a regulatory filing Warren Buffett’s Berkshire Hathaway Inc. (BRK.B) reported that it has acquired 9.8 million shares or $1 billion stake in Apple during the first quarter.
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- Basic Materials Industry
- oil prices