Benchmarks finished mixed on Wednesday following a slump in oil prices and speculations that the Bank of England might cut rates to support Britain’s economy. Oil prices declined following weaker-than-expected fall in U.S. crude inventories, following which most of yesterday’s gains were curtailed. Although both the Dow and S&P 500 managed to end in the green, the Nasdaq declined to close in negative territory.
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The Dow Jones Industrial Average (DJI) increased 0.1%, to close at 18,372.12. The S&P 500 rose 0.29 points to close at 2,152.43. However, the tech-laden Nasdaq Composite Index closed at 5,005.73, losing 0.3%. The fear-gauge CBOE Volatility Index (VIX) decreased 3.8% to settle at 13.04. A total of around 6.5 billion shares were traded on Wednesday, lower than the last 20-session average of 7.86 billion shares. Decliners outpaced advancing stocks on the NYSE. For 46% stocks that declined, 52% advanced.
Following three straight sessions of gains on the back of reduced uncertainty over “Brexit”, Japan’s aim to launch more stimulus measures and encouraging economic data, markets closed mostly mixed yesterday. Although both the Dow and S&P 500 reached record highs for the second and third consecutive trading days, respectively, the Nasdaq finished in the red following five straight sessions of gains.
In U.K., Theresa May succeeded David Cameron as the new British Prime Minister following Cameron’s resignation post “Brexit” referendum results. Moreover, it is expected that in order to boost Britain’s economic condition following its exit from the European Union, Bank of England might reduce interest rates for the first time in seven years. Britain’s central bank is expected to reduce the key interest rate from 0.5% to 0.25% today, which in turn had a broad-based positive impact on global and domestic markets.
Safe-haven sectors like utilities and telecom emerged as the biggest gainers yesterday. The Utilities Select Sector SPDR (XLU) increased 0.8% and was the best performer among the S&P 500 sectors. Key utilities stocks including PG&E Corporation ( PCG), Public Service Enterprise Group Inc. (PEG ), Edison International (EIX), Exelon Corporation ( EXC) and Duke Energy Corporation (DUK) advanced 1.4%, 1.2%, 1.1%, 0.9% and 0.7%, respectively.
Further, the telecom services sector within the S&P 500 also gained 0.8%. Some of its key holdings including AT&T, Inc. ( T), CenturyLink, Inc. (CTL), Level 3 Communications, Inc. (LVLT) and Verizon Communications Inc. ( VZ) rose 0.4%, 0.5%, 3.5% and 1%, respectively.
However, oil prices fell yesterday after the U.S. Energy Information Administration (EIA) reported a lower-than-expected decline in crude inventories. EIA reported that U.S. commercial crude oil inventories fell 2.5 million barrels to 521.8 million for the week ended July 8. This was narrower than analysts’ forecasts of a decrease of 3 million barrels.
According to the report, motor gasoline inventories rose 1.2 million barrels last week, in contrast to analysts’ forecasts of a decline of 432,000 barrels. WTI crude fell 4.6% to $44.75 per barrel, falling below the resistance level of $46 a barrel and settling at its lowest level since May 10. Brent crude also slumped 4.8% to $46.26 a barrel.
Decrease in oil prices led the Energy Select Sector SPDR (XLE) to fall 0.9%, which emerged as the biggest decliner among the S&P 500 sectors. Key energy stocks including, Chesapeake Energy Corporation (CHK), Diamond Offshore Drilling, Inc. (DO), ConocoPhillips (COP), EOG Resources, Inc. ( EOG) and Halliburton Company (HAL) declined 5%, 4.1%, 2.1%, 1.5% and 1.8%, respectively. Both Dow components Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX) decreased 0.1%.
In economic news, economic activity expanded at modest pace in most districts of the U.S., per the Fed’s Beige Book. All the 12 districts indicated moderate growth in economic activity since the previous Beige Book report. Steady growth in employment and "modest to moderate" wage pressures helped labor market conditions to remain stable. “Price pressures remained slight” and consumer spending was ‘generally positive.” Although manufacturing and agricultural activity remained “mixed”, they showed signs of improvements.
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