Following a broad downtrend last week, US stocks rebounded Monday on signs of an economic recovery
As volatility subsides and improving macroeconomic conditions see investors regain their confidence, markets made a good start to the week, with all major indices and their variations (except for the Dow Jones Utilities Average) up by day’s end Monday.
After trading in the red zone for the week, both the S&P 500 (SPX) and the Nasdaq Composite Index (NDX) gained 0.72%, reaching 1,938.99 and 4,383.89. The Dow Jones Industrial Average (DJIA) closed at 16,569.28, gaining 0.46% from last week’s close. Small-cap stock outperformed the market, and their benchmark, the Russel 2000 Index (RUT), was the top performer among indices, gaining 0.9% and closing at 1,124.82.
Monday’s trading session was relatively calmer as compared to the turbulent trading seen lately. The S&P 500 lost almost 2.7% last week, its greatest decline in more than two years, as worries about the Fed’s policy outlook and the global credit environment spread tensions in the market.
Labor statistics for July, released Friday, showed unemployment had fallen to 6.2%, 10 basis points from a six-year record low. Manufacturing activity also accelerated in July, and the Labor Department reported that the economy had added almost 28,000 jobs in the sector – the largest gain since November last year.
As the unemployment rate had dropped marginally in the month, the Fed announced that it plans to keep benchmark rates low till labor market improvements solidify. This will help keep money in equity markets, at least till the next policy announcement.
The Chicago Board Option Exchange’s Volatility Index (VIX), which aims to gauge investor anxiety, also fell 12% yesterday, hinting at easing uncertainty in the coming week. Last week, geopolitical events and an Argentinean default had worried investors, and the Index had subsequently recorded a weekly gain of 34.2%.
Fewer available opportunities in other investment avenues has also played in favor of equities: for example, the 10-year US Treasury Bond yield has dropped 15 basis points to 2.49%, while gold seems to be losing its luster amid the economic recovery and is trading below the $1,300-an-ounce mark.
This week, investors will be looking for data on the US trade deficit, weekly jobless claims, and factory orders. Earnings results will also be monitored, as they will have a major bearing on how markets move in the days ahead.
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