Stocks rebound after early losses to close with modest gains

Following a weak opening, U.S. stocks quickly rebounded and ended modestly higher on Wednesday.

After opening down 0.5%, the S&P 500 finished largely unchanged while the Dow and NASDAQ closed up 0.1%. Small cap stocks did slightly better, with the Russell 2000 and the S&P Small Cap 600 gaining 0.4% and 0.3%, respectively. Across the broad market, advancing issues led decliners by about a 3-to-2 margin. Four of the 10 S&P 500 sectors finished in the green, led by consumer staples, which rose 0.9% thanks to strong gains from Dow components Proctor & Gamble (+2.1%) and Coca-Cola (+1.9%) as well as Kimberly-Clark (+2.0%). Eighteen of the 30 Dow stocks closed higher.

Financial stocks did slightly better than the market at large on Wednesday despite the announcement after the close on Tuesday that federal regulators had rejected “living will” plans by the 11 largest banks. The S&P financials gained 0.4% while the KBW bank index rose 0.2%. Dow components J.P. Morgan Chase (+0.3%) and Goldman Sachs (+0.2%) were both modestly higher while Citigroup gained 0.5%. Bank of America, another of the 11, rose 1.3% after the Federal Reserve announced before the opening that it had “not objected” to a revised capital plan by the bank, after which the bank promptly announced it was raising its quarterly dividend from a penny to five cents a share in September – hardly a huge increase, but the bank’s first dividend hike in seven years. However, BofA said it was scrapping its plan to buy back $4 billion of stock. After the close, the bank reportedly agreed to pay as much as $17 billion — $9 billion of it in cash – to resolve federal allegations of mortgage-related misconduct prior to the financial crisis.

European shares closed in the red but well above their lows of the day, triggered by news that Italy unexpectedly returned to recession, a sharp drop in German factory orders and continued unease about the Ukraine-Russia standoff. Italy’s MIB index lost 2.7% but it had been down as much as 3.3% following news that the economy shrank 0.2% in the second quarter after falling 0.1% in Q1. Germany’s DAX index closed with a 0.7% loss, more than halving an earlier 1.7% drop, where it hit a five-month low. German factory orders fell 3.2% in June, the biggest monthly drop in three years and double May’s decline. The broad-based Stoxx Europe 600 fell 0.9% but had been down more than twice that earlier in the session. Investors fled to the safety of German bunds, where the yield on the 10-year security dropped seven basis points to 1.10%, a near record low. Yields on comparable Italian and Spanish government bonds, however, were higher. The European Central Bank meets tomorrow. At its previous meeting in June it cut its deposit rate below zero and lowered its benchmark lending rate to 0.15%.

Asian markets, which had been an area of relative strength recently, were lower, following the selloff in the U.S. and Europe on Tuesday. Japan’s Nikkei 225 fell 1% for the second straight day, extending its losing streak to five. India’s Sensex fell 0.9% while Hong Kong’s Hang Seng index and the Shanghai composite lost 0.3% and 0.1%, respectively. Gold and silver were both higher by more than 1% but oil futures continued to fall, with WTI dropping 0.5% to below $97 a barrel.

Reports/dates/facts/links worth paying attention to over the next week:

  1. August 7: Weekly unemployment claims; consumer credit (June).
  2. August 12: U.S. Treasury monthly budget report (July).
  3. August 13: Retail sales (July); 10-year Treasury note auction.
  4. August 14: Weekly unemployment claims; 30-year Treasury bond auction.
  5. August 15: Industrial production (July); producer price index (July); University of Michigan consumer sentiment index (August); New York Fed Empire State manufacturing survey (August).
  6. The Atlanta Fed’s new GDP forecasting model: GDPNow

Copyright © 2014 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.

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