Stocks Close Sharply Higher As Traders Go Bargain Hunting - U.S. Commentary

wallstreet 112814 01May15

With traders picking up stocks at somewhat reduced levels, significant strength was visible on Wall Street on Friday. The strong gains on the day partly offset the sell-off that was seen in the previous session.

The major averages saw continued strength going into the close, ending the session at or near their best levels of the day. The Dow jumped 183.54 points or 1 percent to 18,024.06, the Nasdaq soared 63.97 points or 1.3 percent to 5,005.39 and the S&P 500 surged up 22.78 points or 1.1 percent to 2,108.29.

Despite the strength on the day, the major averages moved lower for the week. The Nasdaq tumbled by 1.7 percent, while the Dow and the S&P 500 fell by 0.3 percent and 0.4 percent, respectively.

The rebound seen on Wall Street was partly due to bargain hunting following the notable pullback seen over the past week.

The losses seen over the past few sessions have pulled the Nasdaq and the S&P 500 down well off the record closing highs set last Friday.

The markets managed to maintain a positive bias following the release of a mixed batch of U.S. economic data not long after the start of trading.

The Institute for Supply Management released a report showing that activity in the manufacturing sector continued to expand in April, although the index of activity in the sector unexpectedly held steady.

The ISM said its purchasing managers index came in at 51.5 in April, unchanged from the reading reported for the previous month.

A reading above 50 indicates continued growth in the manufacturing sector, but economists had expected the index to edge up to 52.0.

While the index was unchanged, Bradley Holcomb, chair of the ISM Manufacturing Business Survey Committee, said 15 of the 18 manufacturing industries reported growth in April compared to only 10 in March, indicating a broader distribution of growth.

The Commerce Department released a separate report showing an unexpected drop in construction spending in the month of March.

The report said construction spending fell by 0.6 percent to annual rate of $966.6 billion in March from the revised February estimate of $972.9 billion. Economists had expected spending to rise by 0.5 percent.

Meanwhile, the University of Michigan said its consumer sentiment index for April came in at 95.9, unrevised from the mid-month reading and up from 93.0 in March.

Sector News

Bargain hunting contributed to substantial strength in the biotech sector, with the NYSE Arca Biotechnology Index jumping by 3.3 percent after falling to a two-month closing low on Thursday.

Nektar Therapeutics (NKTR) helped to lead the biotech sector higher, soaring by 20.6 percent after reporting better than expected first quarter results.

Significant strength was also visible among semiconductor stocks, as reflected by the 2.8 percent gain posted by the NYSE Arca Semiconductor Index. The gain by the index came after it ended the previous session at its lowest closing level in a month.

Airline stocks also showed a strong move back to the upside on the day after pulling back sharply over the past few sessions. Reflecting the strength in the sector, the NYSE Arca Airline Index surged up by 2.7 percent.

SkyWest (SKYW) posted a standout gain within the airline sector after reporting better than expected first quarter earnings after the close of trading on Thursday.

Railroad, chemical, housing, and computer hardware housing stocks also saw notable strength on the day, moving higher along with most of the other major sectors.

Other Markets

In overseas trading, many of the stock markets across the Asia-Pacific region were closed on Friday due to the May Day holiday. Nonetheless, Japan's Nikkei 225 Index inched up by 0.1 percent and Australia's All Ordinaries Index rose by 0.4 percent.

Most of the major European markets were also closed on the day, although the U.K.'s FTSE 100 Index rose by 0.4 percent.

In the bond market, treasuries extended the downtrend seen over the past few sessions. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, advanced 7.1 basis points to 2.117 percent.

Looking Ahead

The economic calendar for next week is relatively light, although traders are likely to keep a close eye on the monthly jobs report due next Friday.

Reports on service sector activity, international trade, and labor productivity may also attract attention along with a speech by Federal Reserve Chair Janet Yellen.

On the earnings front, Disney (DIS), Comcast (CMCSA), Tyson Foods (TSN), Allstate (ALL), and Sprint (S) are among the companies due to report their quarterly results next week.

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