Economic reports – both good and bad – lift most stocks

On a day dominated by economic reports – positive in the U.S., negative in the euro zone and China – global stocks were mostly higher on Thursday.

In the U.S., both the Dow and the S&P 500 rose for the fourth straight day, the former rising 0.4% to close above 17000 for the first time since July 24, the latter climbing 0.3% to its 28th record close this year, within 0.5% of the 2000 milestone. NASDAQ rose 0.1%, its sixth gain in the past seven sessions, interrupted only by Wednesday’s fractional loss. All told, winning stocks outpaced losers by about a 60-40 ratio. Financials were the best performing sector in the S&P 500, rising 1.1%, led by a 4% jump in Bank of America, which announced a $17 billion deal – nearly $10 billion in cash – to settle federal mortgage-securities fraud charges. Bloomberg said the bank was planning to sell nearly $5 billion of bonds to finance part of the bill. BAC, formerly a Dow component, closed at its highest level since April.

In the U.S., economic reports released Thursday were uniformly better than expected.

  • Existing home sales rose 2.4% in July to an annualized rate of 5.15 million, the strongest pace this year and the fourth monthly increase in a row. That beat the Street forecast of 5.0 million. Notably, the National Association of Realtors said distressed homes accounted for just 9% of July sales, the first time they were in the single digits since the group started tracking the category in October 2008. By comparison, distressed sales accounted for 36% of sales in 2009. The median existing-home price was $222,900, 4.9% higher than a year earlier.
  • The Conference Board’s index of leading indicators rose 0.9% in July, ahead of the 0.6% forecast, while June’s index gain was revised higher to 0.6% from 0.3%.
  • Unemployment claims for the latest week fell back below 300,000, declining by 14,000 to 298,000, slightly below forecast.
  • The Philadelphia Fed’s general business conditions index climbed to 28.0 in August from 23.9, well ahead of the consensus forecast of 20. However, new orders dropped to 14.7 from 34.2 (although expectations for new orders hit a 10-month high).

European stocks were sharply and broadly higher as weaker than expected reports on the euro zone economy apparently fed speculation of more accommodative measures from the European Central Bank. Markit Economics’ composite output index for the currency union dropped a full point in August to 52.8, as did its manufacturing PMI, which fell to 50.8, a 13-month low. August figures for Germany were also lower compared to the previous month. Nevertheless, German stocks rose nearly a full percentage point, French and Spanish stocks rose more than 1.2%, and Italian stocks jumped more than 2%. Sovereign bond yields were little changed.

Chinese stocks fell but Japan’s Nikkei 225 rose for the ninth straight session following worse than expected Chinese manufacturing numbers. The HSBC flash PMI for China fell to 50.3 in August, a three-month low and just slightly into expansion territory. That was down from a 51.7 reading in July and below forecasts. The Shanghai composite fell 0.4% and the Hang Seng index lost 0.7% on the news, but the Nikkei gained 0.9%; the latter index is up 5.5% since it began its winning streak on August 11. India’s Sensex gained 0.2% after losing 0.4% on Wednesday; the index has risen seven of the past eight sessions.

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

  1. August 22: Federal Reserve Chairman Janet Yellen speaks on labor markets at K.C. Fed’s annual Jackson Hole symposium; ECB President Mario Draghi is also slated to speak.
  2. August 23: Jackson Hole symposium concludes.
  3. August 25: U.S. new home sales (July); Dallas Fed manufacturing survey (August); Chicago Fed national activity index (July).
  4. August 26: Durables goods orders and shipments (July); Case-Shiller home price indexes (June); Conference Board consumer confidence survey (August).

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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