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Friday, February 21, 2014

US stocks finish day with solid gains following a choppy start

Economic data from Wall Street and overseas dictate the momentum

U.S. stocks finished with solid gains on Thursday, 20 February 2014 after a choppy start to the session, shaking off losses that came amid downbeat reports from the Philadelphia Federal Reserve, China and Europe. Prior to the open, the market appeared to be headed for a lower start as disappointing data from China, Japan, and the eurozone weighed on index futures. Despite the weak data from overseas, equity futures were able to find support when a better-than-expected Markit Manufacturing PMI for the U.S. was released.

The Dow Jones Industrial Average rose 92.67 points, or 0.6%, to close at 16,133.23, after showing an intraday gain of more than 100 points. The Nasdaq Composite advanced 29.59 points, or 0.7%, to finish at 4,267.55. The S&P 500 index tacked on 11.03 points, or 0.6%, to end at 1,839.78, with the telecom sector performing best among S&P sectors.

Verizon Communications fared best among the Dow components, jumping 3.4% after some analysts said now is a good time to buy Verizon shares.

Traders found encouragement in a gauge of U.S. manufacturing jumping to its highest level in almost four years, as well as in more M&A activity, this time involving Facebook.

There was a heavy slate of U.S. economic data released Thursday, including the weekly jobless claims report, real earnings, the consumer price index, leading economic indicators, the flash manufacturing PMI, the Philadelphia Fed business outlook survey, and the weekly DOE energy stocks report. The data was a mixed bag for the commodity markets—showing both stronger-than-expected readings and weaker-than-expected readings—and all-in-all the markets were little impacted.

There was a downbeat manufacturing purchasing managers' index coming out of China Thursday, which was also a negative for the raw commodity sector. The Markit preliminary manufacturing PMI came in at a seven-month low of 48.3 in February from 49.5 in January. A reading below 50.0 suggests contraction in the sector. This report adds to recent concerns about a slowing Chinese economy—the second-largest in the world and the world's largest raw commodity consumer. Meantime, the European Union manufacturing and services PMI came in at 52.7 in February versus 52.9 in January.

Traders and investors are still buzzing about Wednesday afternoon's FOMC minutes, in which the Federal Reserve's voting members held the line on wanting to keep the Fed's “tapering” process in place—despite some recent weaker-than-expected U.S. economic data. The FOMC minutes were deemed just a bit more hawkish than expected.

Regarding the data at Wall Street, the weekly initial claims level fell to 336,000 from an unrevised 339,000 while the consensus expected the reading to fall to 335,000. The Conference Board's Index of Leading Indicators increased 0.3% in January after a downward revision to unchanged (from +0.1%) in December. The consensus expected the index to increase 0.4%. The increase in the index was largely the result of the initial claims level returning to normal levels following unusual seasonal biases in the data.

Separately, manufacturing activity in the Philadelphia region contracted for the first time since May 2013. The Philadelphia Fed's Business Outlook Survey for February dropped to -6.3 from 9.4 while the consensus expected the Index to decline to 7.4. Manufacturers commented to the Philly Fed that severe winter storms affected the region and reduced business activity.

Also, consumer prices increased 0.1% in January, down from a 0.2% increase in December. The consensus expected the CPI to increase 0.2%. Inflation growth remains tame, and there was nothing in the data that suggests any type of breakout. Food prices rose 0.1% after being unchanged in December. Excluding food and energy, core CPI increased an in-line 0.1% for a second consecutive month.

Among individual stocks, Facebook closed up 2.3%, erasing early losses. Late Wednesday, the company stunned Wall Street with a deal to buy messaging service WhatsApp. There was some speculation that perhaps the social-media giant paid too much.

Wal-Mart shares finished 1.8% lower after the Dow component delivered a weaker-than-expected forecast for its recently started fiscal year and current quarter.

Bullion metals ended lower on Thursday, 20 February 2014. Gold futures close lower for a second session on Thursday, undercut by strength in the U.S. dollar as well as Chinese data showing a slowdown in manufacturing activity. More mild profit taking from the shorter-term traders also weighed on prices.

April gold futures fell $3.50, or 0.3%, to settle at $1,316.90 an ounce on the Comex division of the New York Mercantile Exchange. March silver closed down nearly 17 cents, or 0.8%, to $21.68 an ounce a day after ending an 11 session winning streak.

Crude prices ended lower at Nymex, 20 February 2014. Oil futures saw pressure from data showing a slowdown in Chinese manufacturing, but a smaller-than-expected weekly climb in U.S. crude inventories offered support.

March crude-oil futures fell 39 cents, or 0.4%, at settle at $102.92 a barrel after spending some time below $103. Prices hit a four-month high on Wednesday. The March contract expired at the close of the close of Nymex trading session. April crude, which became the front-month contract, ended at $102.75, down 9 cents, or 0.1%.

In the latest weekly inventory report, the EIA said crude stockpiles rose 1 million barrels for the week ended 14 February 2014. Market was looking for a climb of 1.9 million barrels. Gasoline supplies rose by 300,000 barrels, while distillate stockpiles, which include heating oil, fell by 300,000 barrels. Gasoline stockpiles were expected to fall 1.3 million barrels while distillate supplies were seen down 2 million barrels.

Treasuries ended modestly lower with the benchmark 10-yr yield up one basis point at 2.75%.

Participation was on the light side as 660 million shares changed hands on the floor of the NYSE.

Tomorrow's data will be limited to the Existing Home Sales report for January, which is set to be released at 10:00 ET.