News Column

Stocks Seeing Modest Strength Amid Optimism About Q2 Recovery - US Commentary

June 25, 2014

WASHINGTON (Alliance News) - After initially showing a lack of direction, stocks have moved modestly higher over the course of the trading day on Wednesday. Buying interest has remained somewhat subdued, however, limiting the upside for the markets.

The major averages have pulled back off their highs for the session but are currently holding on to modest gains. The Dow is up 23.60 points or 0.1% at 16,841.73, the Nasdaq is up 9.66 points or 0.2% at 4,360.01 and the S&P 500 is up 4.11 points or 0.2% at 1,954.09.

The modest strength on Wall Street seems to reflect optimism about a economic recovery following a sharp contraction in the first quarter.

The Commerce Department released a report before the start of trading showing that GDP tumbled by 2.9% in the first quarter compared to the previously estimated 1.0% drop. Economists had expected the revised data to show a 1.8% decrease.

However, Paul Dales, Senior US Economist at Capital Economics, noted that "more up-to-date data show that activity is rebounding in the second quarter."

"In short, the larger contraction in GDP in the first quarter is not a sign that the US is suffering from a fundamental slowdown - it was still largely due to the extreme weather," Dales said. "The latest data are consistent with growth in the second quarter rebounding to at least 3.0%."

Providing evidence of the second quarter recovery, Markit released a separate report showing a faster rate of growth in the service sector in the month of June.

Markit said its reading on service sector activity climbed to 61.2 in June from 58.4 in May, with a reading above 50 indicating growth.

While a separate report from the Commerce Department showed an unexpected drop in durable goods orders in the month of May, the report also showed a rebound by a key indicator of business spending.

Among individual stocks, shares of Monsanto (MON) are turning in a strong performance after the seed company reported better than expected third quarter earnings and raised its full-year guidance. The company also announced a USD10 billion share repurchase authorization.

Underwear maker Hanesbrands (HBI) has also moved notably higher after announcing an agreement to acquire Paris-based DBApparel for about USD545 million.

On the other hand, shares of ImmunoGen (IMGN) have moved to the downside after Morgan Stanley initiated coverage on the biotech company with an Underweight rating.

Sector News

Despite the modest strength being shown by the broader markets, most of the major sectors are showing only modest moves in mid-day trading,

Gold stocks are seeing some strength on the day, however, with the NYSE Arca Gold Bugs Index up by 1%. The index is regaining some ground after plunging by 3% on Tuesday.

The rebound by gold stocks comes amid a modest increase by the price of the precious metal, with gold for August delivery rising USD3.40 to USD1,324.70 an ounce.

Natural gas, chemical, and healthcare stocks are also seeing some strength on the day, while oil stocks are pulling back further off their recent highs.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Wednesday. Japan'sNikkei 225 Index dropped by 0.7%, while Hong Kong'sHang Seng Index edged down by 0.1%.

The major European markets also came under pressure on the day. While the French CAC 40 Index tumbled by 1.3%, the UK'sFTSE 100 Index and the German DAX Index fell by 0.8% and 0.7%, respectively.

In the bond market, treasuries have shown a notable move to the upside on the heels of the disappointing GDP data. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 4.3 basis points at 2.543%.

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Source: Alliance News

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