Benchmarks closed on a positive note on Wednesday but failed to hold on to retain all their initial gains. Uncertainty about the situation in Greece continued to linger. Additionally, energy stocks declined following a dramatic slide in oil prices on record crude inventories, further limiting gains. Stocks were however boosted by positive economic data, which indicated that the U.S. economic growth would be back on track soon.
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) gained 0.8% to close at 17,757.91. The Standard & Poor’s 500 (S&P 500) advanced 0.7% to 2,077.42. The tech-laden Nasdaq Composite Index closed at 5,013.12; increasing 0.5%. The fear-gauge CBOE Volatility Index (VIX) plunged 11.7% to settle at 16.09. A total of about 3.7 billion shares were traded on the NYSE on Wednesday. Advancers outpaced declining stocks on the NYSE. For 61% stocks that advanced, 37% declined.
Greece has decided to hold a referendum on Sunday which will determine whether the country accepts creditors’ austerity demands. Hectic negotiations over the last few weeks have yielded no results. In the meantime, the country has defaulted on an IMF loan repayment, adding to the gloom. Heads of the Eurozone’s central banks have continued to restrict the nation’s access to funds.
Earlier in the day, futures had gained over optimism that the two sides would reach a deal. A report in the Financial Times said that Greece’s prime minister was willing to accept all terms necessary for a fresh bailout offered by creditors last weekend. Finance minister Yanis Varoufakis also reportedly said the country was willing to agree to these conditions. But initial hopes of a resolution faded as the day progressed, limiting gains for stocks.
Additionally, Energy Select Sector SPDR (XLE) lost 1.3%, ending up as the only S&P sector in the red. This was due to a slide in oil prices, caused by the first increase in U.S. crude inventories in more than two months. The Energy Information Administration said commercial crude inventories increased by 2.4 million barrels in the U.S. for the week ended Jun 26.
As a result, benchmark U.S. crude price slumped 4.2% to $56.96 a barrel. This is the largest single-day loss recorded since Apr 8 and crude price fell to the lowest level Since Apr 22. Brent crude lost 2.5% falling to $62.01 a barrel. Consequently, nearly all major energy stocks experienced declines. Exxon Mobile (XOM - Analyst Report), Chevron (CVX - Analyst Report), Marathon Oil (MRO - Analyst Report), Total SA (TOT - Analyst Report), ConocoPhillips (COP - Analyst Report), BP plc (BP - Analyst Report) declined 0.9%, 0.4%, 2.8%, 1.6%, 2.3% and 1.9%, respectively .
Financials emerged as the sector with the largest gains. The Financial Select Sector Sector SPDR (XLF) increased 1.5%. Wells Fargo (WFC - Analyst Report), JP Morgan (JPM - Analyst Report), Berkshire Hathaway (BRK.B - Analyst Report), Bank of America (BAC - Analyst Report), Citigroup (C - Analyst Report) and Goldman Sachs (GS - Analyst Report) gained 1.2%, 1.1%, 1%, 1.2%, 0.7% and 0.5%, respectively.
Coming to economic data, private sector hiring increased at the fastest pace in six months in June. According to the Automatic Data Processing, Inc. (ADP), a total number of 237,000 private jobs were added last month, higher than the upwardly revised May’s jobs additions to 203,000. The numbers were higher than market expectations too, as economists were eyeing an addition of 220,000 jobs.
Additionally, The Institute for Supply management reported its June PMI had increased 0.7 percentage point from May’s reading of 52.8% to 53.5%. The rise to 53.2% in February was better than economists’ expectation of an increase to 53.2%. The report indicated that employment and factory orders increased to their highest level since Dec 2014. This indicates that indigenous demand was helping domestic factories tide over low foreign demand, caused by slowing economies.
Meanwhile, the US Census Bureau of the Department of Commerce reported a 0.8% rise in construction spending from revised April estimate of $1,027 billion to $1,035.8 in May. The measure hit a new high, boosted primarily by private nonresidential building. This metric increased 1.5% to $393 billion, the best figure recorded since Dec 2008.
