Thursday’s economic news fed bullish sentiment, bringing a third consecutive day of stock market gains.
Investors remained bullish on Thursday after the day’s economic news reinforced confidence in the economic recovery. The surprising 6.7-percent jump in the Pending Home Sales Index for May beat economists’ expectations of a mere one percent increase, confirming belief that the housing market is making a strong recovery.
On the other hand, although the Commerce Department’s report on Personal Income and Outlays during May was generally positive, the increase in Personal Consumption Expenditures (PCE or consumer spending) fell a tad short of the expected 0.4 percent increase by rising 0.3 percent — simply offsetting April’s 0.3 percent decline. As a result, several economists have lowered their expectations for second quarter GDP beyond the 1.8 percent indicated in Wednesday’s third estimate of first quarter GDP. A number of economists are now anticipating second quarter GDP to fall as low as 1.4 percent, due to the budget sequester.
In other major markets, oil (NYSEARCA:USO) soared 1.57 percent to close at $34.33. On London’s ICE Futures Europe Exchange, July futures for Brent crude oil advanced by $1.03 (1.01 percent) to $102.69/bbl. (NYSEARCA:BNO). August Gold Futures declined by $30.60 (2.49 percent) to $1,199.20 per ounce (NYSEARCA:GLD). Transports remained in the express lane on Thursday, with the Dow Jones Transportation Average (NYSEARCA:IYT) climbing 0.90 percent.
In Japan, stocks soared as the yen weakened on expectations that the surprising drop in the third estimate to America’s first quarter GDP would influence the Fed to extend its quantitative easing program, thus strengthening the dollar against the yen. A weaker yen causes Japanese exports to be more competitively priced in foreign markets. After the closing bell in Tokyo, the yen weakened to 98.34 per dollar (NYSEARCA:FXY). The Nikkei 225 Stock Average skyrocketed 2.96 percent to 13,213 (NYSEARCA:EWJ).
In China, the financial sector led an early stock market advance after the People’s Bank of China continued to relax its liquidity squeeze, allowing interbank lending rates to resume their decline. The Shanghai Composite Index slipped 0.08 percent to close at 1,950 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index climbed 0.50 percent to 20,440 (NYSEARCA:EWH).
The major European stock indices advanced on Thursday, following the report from America’s Commerce Department, indicating that Personal Consumption Expenditures (PCE or consumer spending) increased 0.3 percent in May, signaling continued demand for European imports in the States. As a result, European exporters led the stock market advance on Thursday (NYSEARCA:VGK).
Technical indicators reveal that the S&P 500 remains a tad below its 50-day moving average of 1,620 after closing at 1,613. The 50-day MA continues to provide significant overhead resistance. As a result, bears are anticipating a decline to the 200-day moving average of 1509. Its Relative Strength Index rose from 45.93 to 48.64. The MACD remains below the signal line and crossed far below the zero line to negative 9 before climbing to negative 8.
For the day, all sectors were in positive territory except for the materials sector, which took a 0.5 percent dip. The financial sector led the group with a gain of 1.29 percent.
Consumer Discretionary (NYSEARCA:XLY): +0.86 percent
Technology (NYSEARCA:XLK): +0.49 percent
Industrials (NYSEARCA:XLI): +0.99 percent
Materials (NYSEARCA:XLB): -0.05 percent
Energy (NYSEARCA:XLE): +0.19 percent
Financials (NYSEARCA:XLF): +1.29 percent
Utilities (NYSEARCA:XLU): +0.21 percent
Health Care (NYSEARCA:XLV): +0.36 percent
Consumer Staples (NYSEARCA:XLP): +0.45 percent
Bottom line: Thursday’s economic news — particularly the surprising rise in pending home sales — kept bullish sentiment alive, sending the stock market to its third consecutive day of gains.
John Nyaradi is the author of The ETF Investing Premium Newsletter.