Bulls Down and Out as Bears Take First Round of Twelve
The U.S. equity markets closed the trading day sharply lower as losses for stocks developed early-on in the wake of a softer-than-expected preliminary read on 4Q GDP. Another volatile session ensued as a late-afternoon surge in WTI crude oil prices allowed stocks to temporarily reverse course but fell short of persuading a positive finish. Additionally, a flare-up in Greek debt concerns may have added to the downbeat sentiment.
Treasuries rallied following the GDP report, which may have overshadowed relatively upbeat reads on domestic consumer sentiment and Midwest manufacturing activity while gold traded higher and U.S. dollar was nearly unchanged..
In earnings news, Amazon.com easily bested bottomline expectations, Google dressed up its disappointing quarterly results with some upbeat commentary from management and Deckers Outdoor posted softer-than-expected results and lowered its full-year guidance. In other equity news, Dow member Visa topped the Street’s quarterly expectations, while fellow Dow component Chevron topped 4Q estimates, but suspended its share-repurchase program and cut its 2015 budget.
The Dow Jones Industrial Average dropped 252 points (1.4%) to 17,165
The S&P 500 Index declined 26 points (1.3%) to 1,995
The Nasdaq Composite fell 48 points (1.0%) to 4,635
In moderately heavy volume, 1.2 billion shares were traded on the NYSE, and 2.2 billion shares changed hands on the Nasdaq
WTI crude oil surged $3.71 to $48.24 per barrel, wholesale gasoline gained $0.09 to $1.48 per gallon
The Bloomberg gold spot price moved $26.33 higher to $1,283.60 per ounce
Markets were lower on the week, as the DJIA dropped 2.9%, the S&P 500 Index fell 2.8% and the Nasdaq Composite Index declined 2.6%
First look at 4Q GDP misses forecasts, while consumer sentiment revised slightly lower
The first look (of three) at 4Q Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of expansion of 2.6%, from the 5.0% expansion in 3Q, and below the 3.0% growth that was forecasted by economists surveyed by Bloomberg. 2014 GDP growth was 2.4% higher y/y, the most in four years, per Bloomberg. However, 4Q personal consumption came in north of forecasts, rising 4.3%—the largest increase since 1Q 2006—following the 3.2% increase recorded in 3Q, and versus the 4.0% gain that was projected. The softer-than-expected report came as the strong personal consumption growth was partially offset by fixed business investment decelerating to an annualized rate of 2.3% from the 7.7% pace in 3Q, while the trade gap widened as imports rose three times faster than exports, likely due to the recent surge in the U.S. dollar. Meanwhile, inventories jumped to boost GDP, while government spending decreased.
On inflation, the GDP Price Index came in much cooler than expected at a flat rate from the 1.4% advance seen in 3Q, and compared to the 0.9% increase that economists anticipated, while the core PCE Index, which excludes food and energy, rose 1.1%, matching expectations, and following the 1.4% growth in 3Q.
The final University of Michigan Consumer Sentiment Index was revised modestly lower to 98.1 from the preliminary level of 98.2 for January, versus an unadjusted figure that was expected, but the level was solidly above the 93.6 reading posted in December. The report came as the component pertaining to current economic conditions was revised higher, offset by a downward adjustment to the economic outlook portion. On inflation, the 1-year expectation was revised higher to 2.5% from 2.4%, and compared to December’s 2.8% figure, while the 5-year inflation outlook was unadjusted at 2.8%, inline with the rate posted last month.
Treasuries were solidly higher following the GDP data, with the yield on the 2-year note decreasing 6 basis points to 0.46%, the yield on the 10-year note dropping 10 bps to 1.66%, and the 30-year bond rate falling 8 bps to 2.24%.
European stocks lower, Asia mixed on heavy data
The European equity markets traded mostly to the downside, with sentiment getting hamstrung by another decline in Eurozone consumer price inflation, which fell more than expected month-over-month in January, as well as the softer-than-expected U.S. 4Q GDP report. A flare-up in Greek debt concerns dampened sentiment after the nation’s finance chief said late in the day following a meeting with the Eurogroup president that it will not cooperate with the Troika—the EU, IMF and ECB—and will not seek an extension to the country’s bailout program. Greek stocks reversed early gains and finished lower, while the nation’s bonds saw heavy pressure.
In other economic news, German retail sales rose at a slightly smaller rate than anticipated for December, while Spanish preliminary 4Q GDP growth topped forecasts and French consumer spending rose much more than projected for last month. Meanwhile, the Eurozone unemployment rate unexpectedly dipped to 11.4% in December, from 11.5% in the previous month, where economists had expected the rate to remain. Finally, Russia’s central bank unexpectedly cut its benchmark interest rate to 15.0% from 17.0%, with the move coming just one-month after the central bank surprisingly raised its interest rate.
The U.K. FTSE 100 Index was down 0.9%, Germany’s DAX Index and Italy’s FTSE MIB Index declined 0.4%, France’s CAC-40 Index and Switzerland’s Swiss Market Index decreased 0.6%, Spain’s IBEX 35 Index descended 1.0%, Russia’s RTS Index dropped 1.4% on a U.S. dollar denominated basis, and Greece’s ASE Index fell 1.6%.