On Friday, U.S. stocks closed off the week on a flat note. The S&P 500, up 0.1% on the day, settled just above its flat line, inching up to a new closing record high at 2,122.73 while the NASDAQ, down 0.1%, lagged throughout the day. For the week, the S&P 500 added 0.3% after being down nearly 1.5% for the week on Wednesday. Overall, the Dow Jones Industrial Average increased 20.32 points to close at 18,272.56, the NASDAQ declined 2.50 points to close at 5,048.29 while the S&P 500 increased 1.63 points to close at 2,122.73.
Seven sectors registered gains with utilities (up 1.3%) holding the lead throughout the session. Meanwhile, influential groups like health care (up 0.2%), consumer discretionary (up 0.8%), and energy (up 0.4%) also ended on a high, but their strength was offset by weakness in the technology sector (declining 0.3%) and financial industry (down 0.4%). The financial sector ended at the bottom of all sectors with U.S. banks leading the decline.
For its part, technology underperformed after leading the market's rebound from Wednesday's low. Large capital components like Apple, Google and Microsoft lost between 0.2% and 0.9% with comparable weakness among their peers overshadowing a decent showing from the chipmaker group.
Similarly, the industrial sector was weighed down by some of its largest members like General Electric and Boeing while transport stocks rebounded after showing relative weakness earlier in the week.
Economic data included Empire Manufacturing Index, Industrial Production/Capacity Utilization and Michigan Sentiment Index. The Empire Manufacturing Survey for May improved to 3.1 from April's -1.2 while analysts’ predicted an increase to 4.5. Industrial production registered its fifth consecutive monthly decline, falling 0.3% in April after declining an upwardly revised 0.3% (from -0.6%) in March while analysts expected an increase of 0.1%. Manufacturing production was flat after increasing 0.3% in March, which was more-or-less in-line with the regional manufacturing surveys that showed minor contractions throughout the U.S. The University of Michigan Consumer Sentiment Index declined to 88.6 in the preliminary May reading from 95.9 in April while analysts expected an increase to 96.0. That was the lowest reading since October 2014 when the index hit 86.9.
On Wednesday, it was announced that technology giant Apple is in talks with online retailer Alibaba to take Apple Pay to China. This was reported by Chinese news agency, Xinhua. In September 2014, Apple unveiled its mobile payment solution, Apple Pay that uses Near-Field Communication (NFC), a contactless payment technology, offering an easy-to-use system. Apple Pay can be used through iPhone, iPad and also Apple Watch.
Apple and Alibaba have been in talks since last year with regard to bringing Apple Pay to China using Alibaba’s Alipay to process transactions. Alipay is a leading third-party online payment solution in China. Alipay, having nearly 300 million users, is based on the quick-response (QR) code system and therefore avoids paying the transaction fee required for NFC transactions.
Apple has been interested in China’s mobile payment market for quite some time. However, regulatory hurdles in the region have been making this difficult. Strong demand for Apple products recently made China the iPhone maker’s second largest market. In the recently reported second quarter results, the company generated $16.8 billion in revenues from Greater China that rose 71% year over year and 4% sequentially. Apple also opened six stores in Greater China, bringing the total to 21 across 11 cities. The company remains on track to open 40 stores in Greater China by the middle of next year.
At present, the Chinese market is primarily dominated by state-owned credit and debit card operator, UnionPay. According to media reports Apple has been in talks with UnionPay also. However, UnionPay could create roadblocks for Apple Pay by setting an unfavorable transaction fee for payment processing through NFC, which is solely regulated by UnionPay.
Nonetheless, Apple continues its negotiations with Chinese regulators given the scope for growth in China, as well as the growing payments business in the country. It is estimated that the market for China’s third party mobile payment market, led by internet payment, mobile payment, prepaid card and point-of-sale increased 391.3% last year and represented about 25.72% of total transactions.
For the week, Apple’s stock reached a weekly high of $129.34 on Friday after it traded at a weekly low of $124.97 on Tuesday.
Next week, economic data in the U.S. will be fairly light. On Tuesday, May 19th U.S. housing starts will be released. Then, on Thursday, May 21st U.S. jobless claims will be announced. If jobless claims are rising, this is a negative sign of the employment situation in the U.S. As a result, this could cause the value of U.S. indices such as the Dow 30 to decline. Additionally, on Thursday, existing home sales will be released. If existing home sales are on the rise, this is likely to send a message that consumers are in a better position and have greater disposable income to apply to the purchase of a home. As a result, this could send U.S. indices such as the S&P 500 to rise. Finally, on Friday, May 22nd Consumer Price Index (CPI) figure will be announced. CPI is a major economic indicator for inflation, so this will also be an important indicator that could cause U.S. indices to change direction.
It was another rocky week in the financial markets – especially in the U.S. It was a mixed end for a range of U.S. sectors, with utilities experiencing most of the gains. Disappointing U.S. economic data was responsible for most of the lackluster results. As we head into a new week, all eyes will be on new economic and corporate data that will be announced. As always, we’re sure that it will be a week to remember…
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