Benchmarks closed in positive territory on Wednesday following late rally in oil prices which boosted energy stocks. Oil prices increased late in the session after data showed that U.S. crude production had declined. Meanwhile, financial stocks continued to mop up gains following Tuesday’s encouraging economic data.
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The Dow Jones Industrial Average (DJI) increased 0.2%, to close at 16,899.32. The Standard & Poor’s 500 (S&P 500) rose 0.4% to close at 1,986.45. The tech-laden Nasdaq Composite Index closed at 4,703.42, gaining 0.3%. The fear-gauge CBOE Volatility Index (VIX) decreased 3.5% to settle at 17.09, remaining at its lowest level since Dec 31. A total of around 8.26 billion shares were traded on Wednesday, lower than the last 20-session average of 8.83 billion shares. Advancers outpaced declining stocks on the NYSE. For 65% stocks that advanced, 32% declined.
Crude prices registered losses in early trading following better-than-expected crude inventories report. Late Tuesday, the American Petroleum Institute (API) reported an increase of 9.9 million barrels in crude inventories for the week ended Feb 26. In contrast, the U.S. Energy Information Administration (EIA) stated that U.S. commercial crude oil inventories rose 10.4 million barrels during the same period.
However oil prices advanced late session after EIA’s reports showed that crude production for the week ending Feb 26 declined. Total crude production declined by 25,000 to 9.1 million barrels per day. Additionally, gasoline production fell to nearly 9.3 million barrels a day last week. The decrease in crude production resulted in late rebound in oil prices. WTI crude increased 0.8% to $34.66 per barrel, its highest level since Jan 5. Brent crude rose 0.3% to $36.93 a barrel.
Increase in crude prices pushed energy shares upward. The Energy Select Sector SPDR (XLE) increased 2.5% and was the biggest gainer among the S&P 500 sectors. Dow components Chevron Corp (CVX) and Exxon Mobil Corp ( XOM) increased 1.8% and 1.2% respectively. Other key energy stocks including, Chesapeake Energy Corporation (CHK), ConocoPhillips (COP), EOG Resources (EOG), Pioneer Natural Resources Co. (PXD) and Halliburton Company (HAL), advanced 23.2%, 5.9%, 3.1%, 2.5% and 1.9% respectively.
Additionally, the SPDR S&P Telecom ETF (XTL) rose 1.6%. Its key components, Verizon Communications Inc. (VZ), T-Mobile US, Inc. (TMUS) and AT&T, Inc. ( T) increased 1.3%, 0.3% and 0.8% respectively.
Meanwhile, Tuesday’s encouraging economic data has boosted chances of a sooner-than-expected rate hike, which continued to power financial stocks. Financial stocks continued to hold on to Tuesday’s gains despite Fed’s Beige Book’s discouraging take on U.S. economic activity. Fed’s Beige Book’s reported moderate to flat economic growth in most of the districts, which in turn raised hopes that the Fed will increase interest rates but at a slower pace.
The Financial Services Select Sector SPDR (XLFS) advanced by 1.2% and was the second highest advancer in the S&P 500 sectors. Top holdings from the sector such as Bank of America Corporation (BAC), Citigroup Inc. ( C) and Wells Fargo & Company (WFC) rose 1.7%, 2.3% and 1.7% respectively. Dow component JPMorgan Chase & Co (JPM) increased 1%.
Separately, Materials Select Sector SPDR (XLB) decreased 0.4% and was the biggest decliner among the S&P 500 sectors following losses by Monsanto Co ( MON). Shares of Monsanto declined 7.8% after the company cut its earnings and cash-flow forecasts for 2016. Monsanto now projects full-year earnings per share to be in the range of $4.40-$5.10, down from its previous outlook of $5.10-$5.40. Further, its cash-flow target is projected to be in the range of $1.4 billion-$1.6 billion, lower than its earlier outlook of $1.6 billion-$1.8 billion.
In economic news, economic activity improved in most districts of the U.S. according to the Fed’s Beige Book. However, the report also stated that economic activity faltered during the latter half of February. All the 12 districts indicated moderate growth in economic activity since the previous Beige Book report. While consumer spending improved in some districts, a decline was experienced in Dallas and Kansas City. Moreover, auto sales were mixed while manufacturing activity and agricultural economic conditions remained flat.
Additionally, a report from Automatic Data Processing, Inc. (ADP) revealed that private sector employers added 214,000 jobs in February, higher than analysts’ expectations of 190,000 job additions. Job additions for January were also revised down by 12,000 to 193,000.
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