The major U.S. equity ETFs finished trading with modest gains after a choppy session, amid the Federal Reserve Chairman Bernanke reiterating in Congressional testimony, that the Central Bank’s asset purchases could be increased or reduced depending on the health of the economic recovery.
Supporting the up-down session were an unanticipated declines in domestic building permits and housing starts, the release of the Fed’s Beige Book that revealed the US economy maintained a “modest to moderate pace” of growth, while mortgage applications declined for the fifth-straight week.
Stocks opened the session in positive territory after Fed Chairman Ben Bernanke delivered his two-day semi-annual congressional testimony in front of the House Financial Services Committee. Bernanke noted that the economy continues to recover at a moderate pace, noting a significant contribution from housing, while acknowledging a gradual improvement in the labor market. However, the jobs situation is “far from satisfactory.”
Bernanke stressed that purchases are “by no means on a preset course,” adding that if economic conditions improve faster than expected and inflation appeared to be rising decisively back toward its objective, the pace of asset purchases could be reduced somewhat more quickly.
Meanwhile, housing starts fell 9.9% in June to an 836,000 unit annual rate, the lowest rate in ten months. Economists expected a 3.9% pickup to a 950,000 unit rate. The decline in June was led by the volatile multifamily sector, which fell 26.7%.
Similarly, building permits fell 7.5%, the most since January 2011, to a 911,000 unit annual rate, contrary to the consensus for a 1.5% gain to a 989,000 unit rate. Moreover, refinance mortgage applications dipped again. The MBA Refinance Index fell 4.2% last week, its ninth decline in the past ten weeks, reaching its lowest level since July 2011.
The iShares Dow Jones U.S. Home Construction ETF advanced 1.3%. However, the remainder of the discretionary sector was not as strong. The price-weighted Dow index trailed behind the broader market throughout the day.
American Express was a notable index laggard after a Financial Times report indicated the Eurozone is likely to implement limits on transaction fees. On a related note, another major financial, Bank of America jumped 2.8% after delivering a solid earnings report. Bank of America’s outperformance helped the financial sector end with a gain of 0.5%.
Other cyclical sectors settled in mixed fashion. Technology underperformed (+0.1%) while energy (+0.5%) and materials (+1.0%) finished ahead of the broader market. Elsewhere, the utilities sector (-0.1%) was the weakest countercyclical group while consumer staples (+0.2%), health care (+0.2%), and telecom services (+0.5%) posted gains.
Not much change in regards to major trends with our Trend Tracking Indexes (TTIs) following the general market. The Domestic TTI inched up to +3.35% while the International TTI ended the day at +6.71%.
Contact Ulli