US markets closed higher for second straight day

30 Jun 2016 Evaluate

The US markets closed higher on Wednesday, rallying for a second day as a surge in crude-oil prices and a receding Brexit fears pared sharp losses stemming from the UK’s surprise vote to leave the European Union. A US Energy Information Administration report showed a sharp drop in domestic crude supplies sent oil prices soaring, which carried energy and materials shares higher. Investors have shown that they are willing to wait for more clarity about the timeline and details of the UK’s exit from the EU, dubbed Brexit. They are now shifting their attention to monetary policy, corporate earnings and the US economic outlook. Though, the Fed has stayed mum about how the Brexit vote might affect its outlook, investors now expect it will stay on hold for the rest of the year. Meanwhile, the US Federal Reserve stated that the nation’s largest banks appear to have the financial muscle to withstand ugly economic scenarios, like a housing market crash or double-digit unemployment. But two banks - Deutsche Bank and Santander Holdings - failed the Fed’s annual stress test. Both failed the tests last year and Santander has become the first bank to fail it for three consecutive years. The stress tests were administered to 33 major banks operating in the US using various hypothetical scenarios, including how banks would fare if the US economy tipped into crisis.

On the economy front, Americans moderated their spending in May after splurging in April, but the pace of consumer purchases in the past two months points to a strong rebound in US economic growth in the second quarter. Outlays rose 0.4% last month after following a revised 1.1% increase in April. The second straight advance in consumer outlays suggests Americans have been undeterred by a slowdown in hiring and weaker US growth in the first three months of the year. Spending is on track to increase two to three times as fast in the spring compared to the first quarter. Consumers did dip into their savings a bit to fund their purchases since take-home didn’t rise as fast. Incomes rose just 0.2% in May which was the smallest gain in three months. Income growth was just 0.1% if inflation, mainly in the form of higher gasoline prices, is taken into account. That’s the smallest increase in 14 months. The savings rate, as expected, fell slightly to 5.3% in May from 5.4%. Savings had hit a four-year high earlier in the year, however.

On the other hand, a gauge of pending home sales slid 3.7% in May, a step back following several months of strong sales. The National Association of Realtors’ index fell to 110.8 in May from a downwardly-revised 115.0 in April. Even with that revision, April figures were the highest since February 2006 - but May marked the first year-over-year decline since August 2014.

The Dow Jones Industrial Average was up by 284.96 points or 1.64 percent to 17,694.68, Nasdaq added 87.38 points or 1.86 percent to 4,779.25, while S&P 500 gained 34.68 points or 1.70 percent to 2,070.77.

The Indian ADRs closed in green; Dr. Reddy’s Lab was up 0.55%, HDFC Bank was up 0.48%, Tata Motors was up 0.29%, Wipro was up 0.24% and Infosys was up 0.23%.

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