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Stocks move lower
On May 9, major U.S. stock indices fell even amid news that jobless claims in America dropped to the lowest in five years during the prior week and consumer sentiment lingered close to a five-year high during the most recent period, according to Bloomberg.
The S&P 500 Index, which is a benchmark group of U.S. stocks, was down less than 0.1 percent at 1,631.82 at 9:40 a.m. in New York, the media outlet reports. On the previous day, the index had its highest closing value ever, finishing trading at 1,632.69.
Record equity values
While the S&P 500 was lower in early trade, this came after the group of stocks has repeatedly risen to new records, and has surged 14.5 percent thus far in 2013, according to Reuters. In addition, the Dow Jones Industrial Average has had a very strong year so far, spiking 15.3 percent. The tech-heavy Nasdaq has also risen sharply, gaining 13 percent.
Michael Hartnett, chief investment strategist at Bank of America Corp., warned clients in a report called 'Raging Bull' that equities could be overvalued, writing that "The risk of a melt-up in stocks is high and rising," Bloomberg reports.
He added that "positioning, price action, policy and a range-bound economy can conspire to cause an overshoot."
Falling jobless claims
According to data contained in a U.S. Labor Department report released on May 9, the number of initial applications for unemployment benefits fell by 4,000 to reach 323,000 during the week ending May 4, 2013.
This figure was lower the the median forecast of 335,000 provided by economists taking part in a Bloomberg poll, and was the smallest number of these claims in more than five years. The strong data points to the strong sentiment of employers, as it indicates that they are optimistic enough to retain their existing staff.
During the week ending May 5, The Bloomberg Consumer Comfort Index declined to a reading of minus 29.5, compared to minus 28.9 during the prior period, when the measure was its highest since January 2008.
The consumption of Americans who are better off is being supported by rising values of stock portfolios and homes. The Wealth Effect asserts that people tend to spend more when they feel wealthier. Consumer spending is a crucial component of the economy, as it accounts for 70 percent of gross domestic product.
The media outlet reports that less-wealthy Americans are not as optimistic, as their economic strength is being hindered by a greater tax burden.
"Upper-income earners feel more comfortable about their finances," Joseph Brusuelas, a senior economist at Bloomberg LP in New York, told the news source. "Middle- and lower-wage earners are facing difficulty adjusting" to reduced after-tax income, and as a result, "consumer spending will grow at a modest pace."
Another factor that has been credited with pushing stocks higher is the strong earnings of major companies. Most of the 440 or so S&P 500-listed companies that have reported these financial figures have surpassed the estimates provided by analysts, according to Reuters.
Data provided by Bloomberg reveals that of the companies contained in the S&P 500 that have released their financial figures since earnings season began, approximately 72 percent have provided numbers that surpassed expectations. However, the sales figures figures of these firms have not been as strong, as 52 percent have fallen below predictions.
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