Closing Summary: Financials Lead Stocks Higher
The major averages finished the Thursday session on an upbeat note with the Dow Jones Industrial Average (+0.7%) in the lead. Small caps underperformed with the Russell 2000 adding 0.1% while the S&P 500 settled higher by 0.6% with nine sectors posting gains.
Stocks began the day on the defensive amid cautious action overseas, but were quick to erase their early losses. The S&P 500 climbed out of the red during the first hour of action with most European indices following suit.
The early advance was powered by the heavily-weighted financial (+1.7%) and technology (+0.7%) sectors, both of which continued their outperformance into the close. Outside of the two, the telecom services sector (+2.5%) was the only other area of relative strength, but it bears noting the group accounts for just 3.0% of the entire S&P 500.
Financials began the trading day ahead of the remaining cyclical groups and never relinquished their standing. Major sector components posted solid gains with JPMorgan Chase (JPM 60.11, +1.81) and Morgan Stanley (MS 32.79, +0.98) ending in the lead. The significant strength of the sector reflected the expected benefit from higher rates and a presumption that stress test results would show that most banks meet the Fed's capital ratio standards. Accordingly, the results, which were released after the close indicated that 29 of 30 banks passed while Zions Bancorp (ZION 32.99, +1.02) failed.
For its part, the technology sector was powered by chipmakers. Intel (INTC 25.42, +0.41) jumped 1.6% while the broader PHLX Semiconductor Index surged 1.9%. Even though most large components outperformed, that was not the case with the largest sector member—Apple (AAPL 528.70, -2.56)—which lost 0.5%.
The underperformance of Apple weighed on the Nasdaq (+0.3%) as the index could not keep up with the broader market. Biotechnology also pressured the Nasdaq Composite as indicated by a 0.5% decline in the iShares Nasdaq Biotechnology ETF (IBB 258.25, -1.22).
Elsewhere, biotechnology also factored into the underperformance of the health care sector (-0.02%), which spent the day in negative territory. Outside of health care, industrials (+0.2%) and utilities (+0.1%) spent the bulk of the session in the red, but erased their losses ahead of the close.
The industrial sector underperformed amid weakness in transports. The Dow Jones Transportation Average shed 0.1% with FedEx (FDX 136.50, -1.88) trailing the remaining index components. The stock ended lower by 1.4% despite being upgraded to ‘Market Outperform' at Avondale this morning. Interestingly, the logistics company reported disappointing earnings ahead of Wednesday's open, but the stock ended yesterday's session little changed.
Meanwhile, the utilities sector lagged as higher rates weighed. Elevated rates also took a bite out of homebuilders, sending the iShares Dow Jones US Home Construction ETF (ITB 24.57, -0.41) lower by 1.6%.
Treasuries spent the entire session in a narrow range with the benchmark 10-yr yield ending unchanged at 2.77%.
Also of note, President Obama announced additional sanctions on 16 Russian officials as well as individuals with close ties to Vladimir Putin while also targeting Bank Rossiya, which is believed to have close ties to the Kremlin. The president also signed an executive order that permits the use of sanctions against specific sectors of the Russian economy. In a swift response, Russia announced sanctions of their own against ten U.S. officials.
Economic data included weekly initial claims, February existing home sales, February Leading Indicators, and the March Philadelphia Fed Survey:
The weekly initial claims level increased to 320,000 from an unrevised 315,000 while the consensus expected the claims level to increase to 330,000. Prior to the last couple weeks, the initial claims level—absent unexpected seasonal biases—was bounded between 330,000 and 340,000. The latest data show a slight downward move from that range, which could be the start of another stage in the improvement in labor market conditions.
Existing home sales fell to a seasonally adjusted annualized rate of 4.60 million in February from an unrevised 4.62 million in January. That was exactly what the consensus expected. For the second consecutive month, the National Association of Realtors blamed extreme winter weather conditions as a primary catalyst for the weakness in sales demand. While sales did drop in winter weather-related areas like the Northeast and Midwest, sales in the South and West still remain well below their December levels. Even if sales recover in the weather-affected areas, overall demand remains below the 5.1 million - 5.3 million that was seen last spring and summer.
The Leading Indicators report for February increased 0.5%. That followed a 0.1% increase in January, and was better than the 0.3% uptick expected by the consensus.
Manufacturing activity in the Philadelphia region ended a temporary contraction in March as the Philadelphia Fed's Business Outlook Survey increased to 9.0 from -6.3 in February. The consensus expected the index to increase to 2.0.
There is no economic data of note on tomorrow's schedule but it is worth mentioning that quadruple witching will be taking place.
Nasdaq Composite +3.4% YTD
Russell 2000 +3.3% YTD
S&P 500 +1.3% YTD
Dow Jones Industrial Average -1.5% YTD