Benchmarks closed in the green on Tuesday following the release of Trump’s budget proposal which was more or less in line with expectations. Financials moved north led by gains in bank stocks. Energy shares advanced following rise in expectations of production cuts by major oil producers including Russia. Meanwhile, broader markets pared some gains due to the fall in consumer discretionary shares.
For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article.
The Dow Jones Industrial Average (DJI) gained 0.2% or 43.08 points to close at 20,937.91. The S&P 500 rose 0.2% to close at 2,398.42. The tech-laden Nasdaq Composite Index advanced 0.1% to close at 6,138.71. A total of around 5.95 billion shares were traded on Tuesday, lower than the last 20-session average of 6.9 billion shares. The fear-gauge CBOE Volatility Index (VIX) closed at 10.47. Advancers outnumbered declining stocks on the NYSE by a 1.48 to 1 ratio.
Trump’s Budget Plan Boosts Broader markets
Markets stabilized on Tuesday following the release of Trump’s budget plan on Monday night. Lack of updates related to the FBI probe into Mike Flynn’s involvement with Russian sources over the weekend helped markets to recover from the losses it suffered due to events at the White House. Instead, Trump’s first foreign visit continued to dominate headlines.
Even as investors digested the full budget plan, they remained doubtful over the likelihood of its approval in Congress. Trump’s budget seeks to cut federal spending by $3.6 trillion with a focus on balancing the budget over the next decade through cuts in healthcare and food assistance programs. The budget plan is expected to make changes to key programs such as Medicaid, food stamps and federal student loans through steep cuts in government spending in these areas. Defense and infrastructure are among the few areas where the budget proposes to increase funding.
However, the budget assumes the Trump administration will lower tax rates for corporate and households. The White House has proposed to slash the corporate rate to 15% and reduce individual rates from seven brackets to three. Since Trump’s budget plan came in largely as expected, it had a positive impact on the broader markets.
The broader Financials Select Sector SPDR (XLF) advanced 0.8%, emerging as the best performing sector of S&P 500. Some of the key holdings of the financial sector in the S&P 500 including JP Morgan Chase & Co (JPM – Free Report) and Goldman Sachs Group (GS – Free Report) gained 1.3% and 1.7% respectively.
Energy Shares Gain
Oil prices gained on Tuesday following a rise in expectations that OPEC and other major oil producing countries would enter into a deal to extend oil production cuts at a meeting scheduled later this week. Initially, oil prices fell following news of Trump’s proposal to sell crude from the U.S. strategic petroleum reserves as part of his budget plan.
Consequently, WTI crude prices increased by $0.34, or 0.7%, to $51.47 a barrel. The broader Energy Select Sector SPDR (XLE) advanced 0.2%. Some of the key holdings of the energy sector in the S&P 500 including Exxon Mobil Corp (XOM – Free Report) and Halliburton Co (HAL – Free Report) gained by 0.4% and 1% respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Consumer Discretionary Declines
Broader markets pared some gains following declines in shares of consumer discretionary sector with fall in shares of auto part retailers. Shares of Advance Auto Parts (AAP – Free Report) and O’Reilly Automotive (ORLY – Free Report) declined. Moreover, shares of Autozone Inc (AZO – Free Report) tanked 11.8%, dragging down the consumer discretionary sector, following the release of the company’s weaker-than-expected third quarter 2017 earnings results.
AutoZone reported earnings of $11.44 per share in the third quarter of fiscal 2017, missing the Zacks Consensus Estimate of $12.00. However, the company logged revenues of $2.62 billion, surpassing the Zacks Consensus Estimate of $2.70 billion.
As per the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, new home sales were at a seasonally adjusted annual rate of 569,000, in April 2017. The figure came in below the consensus estimate of 610,000 and also came below the revised March rate of 642,000.
Stocks that made Headlines
European oil giant Royal Dutch Shell plc (RDS.A – Free Report) was recently criticized for failing to set an annual greenhouse gas reduction target in line with the Paris climate agreement. (Read More)
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