Markets Take Breather to Cap Off a Directionless Week
After posting mixed performances throughout the week, U.S. equities finished out Friday on a down note, as a smaller-than-expected downward revision to 4Q GDP coupled with a surprising contraction in regional manufacturing activity to further solidify the lack of direction that appeared to be the week’s theme.
Equity news was light, as J.C. Penney’s results were flat, compared to forecasts of a profit, while Gap beat the Street by a penny and upped its share repurchases and dividend.
Treasuries finished higher following the reports, gold and crude oil prices gained ground, while the U.S. dollar was nearly flat.
The Dow Jones Industrial Average declined 82 points (0.5%) to 18,132
The S&P 500 Index lost 6 points (0.3%) to 2,104, overall momentum was negative with 9 of the 10 S&P 500 sectors lower with Consumer Staples +.40% being the lone sector in the green, while Energy, HealthCare and Industrials were the largest losers.
Small and MidCaps traded along with LargeCaps as the Small Cap 600 gave back .40% and the MidCap 400 lost .39%
The Nasdaq Composite fell 24 points (0.5%) to 4,964
In moderate volume, 836 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq
WTI crude oil rose $1.59 to $49.76 per barrel, wholesale gasoline jumped $0.08 to $1.98 per gallon
The Bloomberg gold spot price moved $3.14 higher to $1,212.63 per ounce
Markets were mixed and close to unchanged for the week, as the DJIA was nearly even, the S&P 500 Index declined 0.3%, and the Nasdaq Composite Index gained 0.2%
Downward revision of 4Q GDP smaller than expected, headlining a host of data
The second look (of three) at 4Q Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of growth of 2.2%, revised lower from the 2.6% expansion reported in the first report. This compared to the Bloomberg forecast of a downwardly adjusted 2.0% increase. 3Q GDP expanded by an unrevised 5.0%. Also, personal consumption came in at a 4.2% gain for 4Q—but was still the strongest pace in four years—from the 4.3% increase previously reported, which was where economists had expected it to remain. Personal consumption grew by an unrevised 3.2% in 3Q. The downward revision reflected lower-than-initially-estimated inventory investment and an upward adjustment to imports, partially offset by positive revisions to nonresidential fixed investment and to state and local government spending.
On inflation, the GDP Price Index was upwardly revised to a 0.1% increase, compared to an expected unrevised flat reading posted in the earlier report, while the core PCE Index, which excludes food and energy, matched forecasts of an unadjusted 1.1% gain.
The final University of Michigan Consumer Sentiment Index was revised higher to 95.4 for February from the preliminary level of 93.6, and versus an expected 94.0, but was solidly below the 11-year high of 98.1 posted in January. Both components pertaining to current economic conditions and economic outlook were revised higher, but were down versus January. The 1-year and 5-year inflation projections were mixed, with the former rising and the latter dipping versus the prior month.
The Chicago Purchasing Managers Index showed growth in Midwest activity unexpectedly fell into contraction in February, dropping to 45.8—the first contraction reading (below 50) since April 2013—from the unrevised 59.4 level in January, and versus expectations of a decline to 58.0.
Pending home sales rose 1.7% month-over-month in January, versus the projected 2.0% gain, and following the upwardly revised 1.5% decline registered in December. Y/Y, sales were 6.5% higher last month, versus the 8.7% rise that was anticipated. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which fell more than expected in January.
Treasuries finished higher, as the yields on the 2-year note and the 30-year bond declined 3 basis points to 0.63% and 2.60%, respectively, while the 10-year notes was 4 bp lower at 2.00%.
Europe shows relative late-day resiliency, Asia mixed to close out the week
The European equity markets showed some modest strength in late-day action to finish mostly higher, with traders digesting a mixed bag of earnings reports in the region, along with the slightly stronger-than-expected read on U.S. 4Q GDP growth. In economic news, French consumer spending unexpectedly rose last month, while preliminary German consumer price inflation came in much hotter than expected for February.
Stocks in Asia finished mixed as traders digested a plethora of economic reports out of Japan, while Chinese stocks extended yesterday’s strong advance amid continued hopes of further stimulus measures, ahead of next week’s annual National People’s Congress meeting. Japanese equities ticked higher, with the yen weakening solidly yesterday versus the dollar following an upbeat read on durable goods orders and hotter-than-expected core consumer price inflation out of the U.S. Japanese economic data was mixed, with industrial production rising more than expected, while household spending fell more than estimated and consumer price inflation, excluding fresh food, came in cooler than projected.
Stocks in Australia traded higher amid some resiliency in mining and banking stocks, and Indian shares jumped ahead of tomorrow’s release of the government’s annual budget, which is expected to deliver business reform efforts.
Weekly ReCap: Stocks barely budge on week but post strong February gains
Stocks finished a stone’s throw from the unchanged mark for the week, though they closed out a strong February, which took the Dow and the S&P 500 to more record highs, while the Nasdaq threatened the 5,000 mark. Greek debt uncertainty continued, despite a four-month conditional extension of its rescue aid. Federal Reserve Chairwoman Janet Yellen delivered her semi-annual Congressional economic and monetary policy testimony, offering no new insight to the time table for the beginning of rate hikes, even as she offered an upbeat assessment of the U.S. economy. The U.S. dollar continued its rally after receiving a boost from an upbeat durable goods orders report and a hotter-than-expected read on core consumer price inflation. .
The week ahead: Labor and manufacturing reports set to take week’s top billing
Next week’s heavy U.S. economic calendar will be book-ended by Monday’s ISM Manufacturing Index and Friday’s February non-farm payroll report. We believe the U.S. economy has entered a period of self-sustaining growth, agreeing with Treasury Secretary Jack Lew, buoyed by still decent growth in manufacturing activity, despite signs of a slight downshift in activity. Our view is reinforced by the persistent strength in the labor market and we believe the consumer is poised to take over leadership within the U.S. economy.
Other reports on next week’s economic docket include: personal income and spending, Markit’s business activity reports, construction spending, monthly auto sales, weekly mortgage applications and jobless claims, the Fed’s Beige Book, 4Q non-farm productivity and unit labor costs, factory orders, the trade balance, and consumer credit.