US markets closed mostly higher; Dow closes slightly in red

30 Jul 2016 Evaluate

The US markets closed mostly higher on Friday, as Wall Street shook off earlier concerns about sluggish second-quarter domestic growth. Federal Reserve Bank of Dallas President Robert Kaplan called for structural reforms and other fiscal policy to help jump-start the US economy, which he said would give the central bank more operating room to raise interest rates. The US economy grew 1.2% in the second quarter, less than the 2.6% that had been expected by the street. Kaplan added that the numbers underscore the sluggish growth with which the US and global economies have been since the financial crisis. Kaplan enlightened that accommodative monetary policy was causing distortions in the market. But he said the Fed must be cautious about raising rates when growth is still sluggish. San Francisco Fed President John Williams stated that he wasn't worried about a greater risk of a recession even though the US is in its eighth year of an economic expansion. Williams added that the US economy is doing well, with the labor market close to full employment, core-inflation rate around 1.5%, close to the goal of 2%. Williams, who is not a voting member of the Fed policy committee, enlightened that two hikes could still happen.

On the economy front, the US economy grew at a slower pace than expected in the second quarter. The tepid 1.2% annual growth rate was due to a large decline in business investment. Meanwhile, first-quarter growth was also reduced to a 0.8% annual rate from the prior estimate of a 1.1% gain. Businesses cut fixed investment by 3.2%, the biggest drop since 2009. And the value of inventories contracted for the first time since 2011, falling by $13 billion. Nor do companies show any sign they soon plan to ramp up investment, one of the three main pillars of economic growth. The soft pace of growth could also complicate plans of the Federal Reserve to raise interest rates later this year, perhaps as early as September. Still, consumers account for 70% of US economic activity and they are likely to continue to spend at a pace that keeps growth on a steady keel. Unemployment is low, wages are rising and companies are still hiring, though not as rapidly as at the end of last year.

Meanwhile, a measure of Chicago-area economic activity retreated only slightly in July after a strong gain in the prior month. The Chicago PMI fell 1 point to 55.8. In June, the index surged 7.5 points to 56.8. Readings above 50 indicate expansion in the sector. A gauge of US consumer sentiment dropped in July - a sign that global economic uncertainty could ripple through domestic spending. The University of Michigan stated that its consumer-sentiment index fell to 90.0 in July, down from a reading of 93.5 in June. Consumer spending has been relatively resilient despite economic turmoil overseas, underpinning growth in the second quarter even as businesses pulled back on investment.

The Nasdaq added 7.15 points or 0.14 percent to 5,162.13, S&P 500 gained 3.54 points or 0.16 percent to 2,173.60, while Dow Jones Industrial Average lost 24.11 points or 0.13 percent to 18,432.24.

The Indian ADRs closed mixed; Tata Motors was up 0.33%, HDFC Bank was up 0.23% and Dr. Reddy’s Lab was up 0.04%. On the other hand, ICICI Bank was down 0.43% and Wipro was down 0.18%.

US markets closed mostly higher; Dow closes slightly in red

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