Benchmarks closed in positive territory on Friday following speculations that indications of a Fed rate hike signal that the economy may be strengthening. Moreover, gains in Applied Materials following higher than expected profit forecast had a positive impact on tech stocks, which in turn boosted the Nasdaq. For the week, the S&P 500 and Nasdaq snapped their three week and four week losing stretch, respectively to close in the green. However, the Dow fell for the week, registering four consecutive weekly declines since Oct 2014.
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The Dow Jones Industrial Average (DJI) increased 0.4% to close at 17,500.94. The S&P 500 rose 0.6% to close at 2,052.32. The tech-laden Nasdaq Composite Index closed at 4,769.56, gaining 1.2%. The fear-gauge CBOE Volatility Index (VIX) decreased 6.9% to settle at 15.20. A total of around 3.5 billion shares were traded on Friday on NYSE. Advancers outpaced declining stocks on the NYSE. For 78% stocks that advanced, 19% declined.
Markets rebounded on Friday following a change in perception among investors about the rate hike. After the release of FOMC’s minutes on Wednesday, rate hike fears weighed on investor sentiments. The minutes said that “most participants” believed that “if the incoming data were consistent with economic growth” in the “second quarter” then the Fed may opt for a hike in June. Investors now perceive that the decision to hike rates emanates from a series of encouraging economic reports, rising rate hike prospects might indicate a stronger economy.
Further, shares of Applied Materials, Inc. (AMAT – Analyst Report) jumped 13.8% following a better-than-expected fiscal third quarter profit forecast after its order reached a 15 year high in fiscal second quarter. Its order reached $3.5 billion during the quarter, increasing 37% year-over-year and 15% from the previous quarter.
The company projected its third quarter adjusted profit to remain in the range of 46-50 cents per share, much higher than analysts’ estimates of 36 cents per share. Revenues are expected to be in the range of $2.79 billion-$2.89 billion, higher than the Zacks Consensus Estimate of $2.5 billion.
Applied Materials’ fiscal second quarter earnings per share (EPS) and revenues of 34 cents and $2.45 billion beat the Zacks Consensus Estimate of 32 cents and $2.41 billion, respectively. It was the biggest gainer among the S&P 500 companies.
Gains in Applied Materials’ shares helped the Technology Select Sector SPDR (XLK) to increase 1.2% and become the biggest advancer among the S&P 500 sectors. Some of the major components including Apple Inc. (AAPL – Analyst Report) , Alphabet Inc. (GOOGL – Analyst Report) , Facebook, Inc. (FB), Intel Corporation (INTC), IBM (IBM), QUALCOMM Incorporated ( QCOM) and Broadcom Limited (AVGO) increased 1.1%, 0.9%, 0.5%, 1.8%, 1.6%, 0.6%, 3.3% and 2.8%, respectively.
Additionally, Tesla Motors, Inc’s (TSLA – Analyst Report) shares rose 2.4% on news that the company has raised fresh capital of $1.46 billion by selling 6.8 million in common stocks. Gains in Tesla also had a positive impact on investor sentiment.
However, shares of Foot Locker, Inc. (FL – Analyst Report) plunged 6.5% after its fiscal first quarter EPS and revenues of $1.39 and $1.98 billion missed the Zacks Consensus Estimate of $1.40 and $2 billion, respectively. It was the biggest loser among the S&P 500 companies.
In economic news, the National Association of Realtors reported that existing home sales for the month of April came in at 5.45 million units, increasing 1.7% from the revised level of 5.36 million units for March. Existing home sales also came in ahead of the consensus estimate of 5.38 million units. Existing home sales increased for the two-consecutive months.
For the week, the Dow declined 0.2%, while the S&P 500 and Nasdaq rose 0.3% and 1.1%, respectively, following gains in financial services and energy stocks. Rising rate hike worries raised investor woes, but had a positive impact on the financial services sector. Increase in oil prices boosted energy stocks.
Fed rate hike possibilities increased following FOMC’s minutes, which had a positive impact on financial services and bank stocks. The Financial Services Select Sector SPDR (XLFS) and KBW Nasdaq Bank index rose 2.2% and 4.2%, respectively.
During the week, Goldman Sachs Group, Inc. (GS – Analyst Report) said that oil market encountered a deficit in crude production following production disruptions in Nigeria and Canada. Following production disruptions in Fort McMurray’s oil sand hub in Alberta, Canada, nearly 4,000 people was evacuated from work camps.
Also, U.S. Energy Information Administration (EIA) reported a fall in gasoline inventories by 2.5 million barrels for the week ended May 13. All these factors helped the WTI crude and Brent crude to increase by 3.3% and 2%, respectively for the week.
Moreover, shares of Apple Inc increased after Warren Buffett’s Berkshire Hathaway Inc. (BRK.B – Analyst Report) reported in a regulatory filing that it has acquired 9.8 million shares or $1 billion stake in Apple during the first quarter. Further, Pfizer Inc. (PFE – Analyst Report) announced that it will acquire Anacor Pharmaceuticals, Inc. ( (ANAC – Snapshot Report) for $99.25 per share or $5.2 billion in cash and debt.
In earnings news, Home Depot, Inc. (HD – Analyst Report) and Wal-Mart Stores Inc’s (WMT – Analyst Report) posted better than expected earnings results and strong outlook. However, Target Corp’s ( (TGT – Analyst Report) missed revenue estimates and projected weak guidance.
In economic news, initial claims decreased and leading Indicators Index advanced. Also, Consumer Price Index (CPI), Core CPI, housing starts, building permits, industrial production and capacity utilization increased. However, the Empire State Manufacturing Survey Index came in at a negative and National Association of Home Builders (NAHB) home builder sentiment index (HMI) remained flat.