Benchmarks finished mostly in the red on the last day of the first quarter of 2016 after investors adopted a cautious stance before the crucial jobs report due on Friday. Both the Dow and the S&P 500 ended in negative territory, while the Nasdaq closed flat. All the major benchmarks registered best monthly performance for the year, rebounding strongly from Feb 11’s lows. While the Dow and S&P 500 closed in positive territory for the second consecutive quarter, the Nasdaq ended in the red during the first quarter.
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The Dow Jones Industrial Average (DJI) decreased 0.2%, to close at 17,685.09. The S&P 500 also fell 0.2% to close at 2,059.74. However, the tech-laden Nasdaq Composite Index closed at 4,869.85, gaining a meager 0.56 point. The fear-gauge CBOE Volatility Index (VIX) increased 2.9% to settle at 13.95. A total of around 6.8 billion shares were traded on Thursday, lower than the last 20-session average of 7.7 billion shares. Advancers outpaced declining stocks on the NYSE. For 53% stocks that advanced, 43% declined.
On Thursday, investors remained cautious before Friday’s ISM and jobs report. This in turn had a broad-based negative impact on the market, with material stocks acting as the biggest drag on stocks. The Materials Select Sector SPDR ETF (XLB) fell more than 0.8% and was the biggest loser among the S&P 500 sectors. Key holdings of the materials secto,r such as Newmont Mining Corporation (NEM), Alcoa Inc. ( AA), E. I. du Pont de Nemours and Company (DD), The Dow Chemical Company (DOW), Monsanto Company (MON) and Ecolab Inc. (ECL), decreased 0.6%, 1%, 1.3%, 1.2%, 3.7% and 0.8%, respectively.
In economic news, the U.S Department of Labor reported that seasonally adjusted initial claims increased 11,000 to 276,000 in the week ending March 26, reaching its highest level in 2 months. Initial claims were more than the consensus estimate of 267,500.
However, the Chicago Purchasing Managers Index (PMI) increased from February’s reading of 47.6 to 53.6 in March, indicating a rise in manufacturing activity in the region. This was also higher than the consensus estimate of 50.5.
Oil prices managed to end in the green on Thursday despite supply worries following a weaker dollar. The U.S. Dollar Index decreased 0.2% to 86.56 and fell 4% for the quarter, its worst percentage fall since 2010. Both the WTI crude and Brent crude increased by 0.1% and 0.9% to $38.34 per barrel and $39.60 a barrel.
However, concerns about whether the Doha meeting on production freeze this month would be able to control the crude supply glut remained. A survey showed that OPEC crude output increased from 32.37 million barrels per day (bpd) in February to 32.47 million bpd in March.
For the month, the S&P 500, the Dow and the Nasdaq advanced 6.7%, 7.1% and 6.8%, respectively. The S&P 500 experienced its highest percentage monthly gain since October. Benchmarks closed in the green for the month following strong gains in energy, technology and materials sector, reduced rate hike fears and upward movement in oil prices.
Oil prices increased following positive comments from ministers and officials of both OPEC and non OPEC countries. Moreover, major oil producing companies will be meeting on Apr 17 to discuss an oil production freeze in order to boost prices. Meanwhile, Iran, which previously showed an unwillingness to enter into any such agreement, recently expressed interest in joining the meeting. WTI crude rose by 14% in March, while Brent crude increased 10%, its highest gain since April 2015.
However, the terrorist attack in Brussels curbed some of the gains in oil prices. Also, the increase in crude stockpiles level had a negative impact on crude prices.
Separately, the Federal Open Market Committee (FOMC) decided to keep rates unchanged and forecasted that number of rate hikes this year will be two instead of four. FOMC also reduced outlook for GDP growth and inflation rate. FOMC’s policy statement also pushed key indexes upward. Also, Fed Chairwoman Janet Yellen’s indication that Fed should take a cautious stance before hiking interest rates last month boosted investor sentiment.
Meanwhile, economic data remained mixed during the month. Data including ISM manufacturing index, factory orders, consumer confidence, non-farm pay roll data, pending home sales and housing starts were in encouraging. Also, fourth-quarter GDP data was revised upward to 1.4% in its third estimate from the previously estimated 1% rise. However, reports such as ISM services index, Core personal consumption expenditure price index (PCE), industrial production and retail sales dampened investor sentiment.
For the quarter, both the S&P 500 and the Dow gained 0.8% and 1.5%, respectively. However, the Nasdaq declined 2.8% and posted its worst first quarter performance since 2009. The Nasdaq fell during the quarter after the iShares Nasdaq Biotechnology (IBB) plunged 22.9%. The oil rebound, improving U.S. economy and reduced rate hike possibilities had a positive impact on the market. Gains in consumer staples and industrials stocks boosted benchmarks for the quarter.
Benchmarks started the year on a sluggish note following continuous decline in oil prices and economic slowdown in China. However, deceleration in China’s economic growth later in January raised hopes of further stimulus measures that eventually had a positive impact on the broader markets.
Meanwhile, volatile movement in oil prices and doubt over Fed rate hike prospects kept a lid on gains even on February. But increase in production freeze possibilities helped crude prices end in the green for the quarter. WTI crude rose 3.5%, its first quarterly increase in last three quarters. Brent crude also increased 6.2%.
Also, Fed Chairwoman Janet Yellen’s dovish comments reduced chances of immediate rate hikes, which in turn boosted benchmarks. Yellen said that following the recent risky outlook, the Committee should “proceed cautiously in adjusting policy.”
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