After recovering from an early move to the downside, stocks saw modest strength for much of the remainder of the trading session on Friday. The strength on the day came as upbeat economic data overshadowed concerns about the impact of automatic government spending cuts.
The major averages moved roughly sideways going into the close, hovering in positive territory. The Dow edged up 35.17 points or 0.3 percent to 14,089.66, the Nasdaq climbed 9.55 points or 0.3 percent to 3,169.74 and the S&P 500 inched up 3.52 points or 0.2 percent to 1,518.20.
With the gains on the day, the major averages continued to rebound from Monday's sharp pullback and closed higher for the week. The Dow rose by 0.6 percent, while the Nasdaq and the S&P 500 crept up by 0.3 percent and 0.2 percent, respectively.
While worries about the automatic spending cuts initially generated considerable selling pressure, stocks showed a substantial rebound following the release of an upbeat report on U.S. manufacturing activity.
The Institute for Supply Management said its index of activity in the manufacturing sector rose to 54.2 in February from 53.1 in January, with a reading above 50 indicating growth in the sector. With the increase, the index reached its highest level since June of 2011.
A separate report from Thomson Reuters and the University of Michigan showed that consumer sentiment improved by even more than initially estimated in the month of February.
The report said the final reading on the consumer sentiment index for February came in at 77.6 compared to the mid-month reading of 76.3. Economists had expected the index to be downwardly revised to 76.0.
On the other hand, the Commerce Department released a report before the start of trading showing a sharper than expected pullback in personal income in the month of January.
The disappointing income data helped to limit the upside for the markets along with lingering worries about the automatic spending cuts.
Approximately $85 billion in automatic cuts to both defense and domestic spending are due to go into effect before midnight due to Washington lawmakers' inability to reach a budget compromise.
The automatic spending cuts, known as the sequester, were implemented as part of the Budget Control Act of 2011 in order to push lawmakers to compromise on a broader budget agreement.
Members of both political parties warned about the economic impact of the cuts, but familiar disagreements over taxes and entitlement reforms prevented lawmakers from reaching an agreement to avoid them.
Airline stocks turned in some of the market's best performances on the day, resulting in a 1.9 percent gain by the NYSE Arca Airline Index. With the gain, the index ended the session at its best closing level in over five years.
Within the airline sector, Republic Airways (RJET), Delta Air Lines (DAL), and United Continental (UAL) posted notable gains.
Significant strength also emerged among biotechnology stocks, as reflected by the 1.5 percent gain posted by the NYSE Arca Biotechnology Index. Strong gains by Sequenom (SQNM) and Illumina (ILMN) helped lift the index to a new record closing high.
Software and electronic storage also moved to the upside on the day, while considerable weakness remained visible among steel stocks.
In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Friday. While Japan's Nikkei 225 Index rose by 0.4 percent, Hong Kong's Hang Seng Index ended the day down by 0.6 percent.
The major European markets also turned mixed over the course of the trading day. The U.K.'s FTSE 100 Index rose by 0.3 percent, while the German DAX Index and the French CAC 40 Index fell by 0.4 percent and 0.6 percent, respectively.
In the bond market, treasuries extended a recent upward move amid concerns about the impact of the sequester. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.5 basis points to a one-month closing low of 1.853 percent.
Next week, the Labor Department's monthly employment report is likely to be in focus, although the data may be seen as old news considering it reflects a time before the sequester takes effect.
Ahead of the release of the jobs report next Friday, reports on service sector activity, factory orders and international trade are likely to attract attention along with the Federal Reserve's Beige Book.
by RTT Staff Writer
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