U.S. equities finished a relatively dismal week in some surprisingly optimistic fashion as a solid rally developed in the final thirty minutes of trading to trim losses, though the major indexes still closed lower with the healthcare and technology sectors receiving the brunt of the day’s decline.
Consumer discretionary stocks were top performers, bolstered by Amazon.com’s much better-than-expected quarterly results.
Treasuries finished higher as the domestic docket delivered some mixed reads on personal income and spending, regional manufacturing activity and consumer sentiment. Gold rallied, the U.S. dollar was lower and crude oil prices were mixed.
The Dow Jones Industrial Average declined 57 points (0.3%) to 17,774
The S&P 500 Index lost 11 points (0.5%) to 2,065
The Nasdaq Composite dropped 30 points (0.6%) to 4,775
In heavy volume, 1.3 billion shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq
WTI crude oil ticked $0.11 lower to $45.92 per barrel, wholesale gasoline was $0.01 lower at $1.60 per gallon
The Bloomberg gold spot price added $26.18 to $1,292.44 per ounce
The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.8% lower at 93.05
Markets were lower for the week, as the DJIA declined 1.3%, the S&P 500 Index lost 1.3%, while the Nasdaq Composite decreased 2.7%
Personal income and spending mixed
Personal income was 0.4% higher month-over-month (m/m) in March, above the Bloomberg forecast of a 0.3% gain, and February’s downwardly revised 0.1% gain. Personal spending was 0.1% higher, below the expected 0.2% increase, and March’s upwardly adjusted 0.2% rise. The March savings rate rose to 5.4% from February’s downwardly revised 5.1% rate. The PCE Deflator ticked 0.1% higher m/m, in line with forecasts. Compared to last year, the deflator was 0.8% higher, matching estimates. Excluding food and energy, the PCE Core Index was 0.1% higher, in line with expectations, and the index was up 1.6% y/y, matching estimates.
The final April University of Michigan Consumer Sentiment Index was revised to 89.0 from the preliminary level of 89.7, and compared to expectations of 90.0, led by a downward adjustment for the expectations component of the report. The index was also lower compared to March’s level of 91.0. The 1-year inflation outlook nudged higher to 2.8%, from March’s 2.7% rate. The 5-10 year inflation forecast came in at 2.5%, following the 2.7% level recorded in March.
The Chicago Purchasing Managers Index held slightly onto expansion territory (above 50), after falling to 50.4 in April from 53.6 in March, and versus expectations of a decline to 52.6.
The Q1 Employment Cost Index rose by 0.6% quarter-over-quarter, in line with forecasts and versus the downwardly revised 0.5% increase posted in Q4.
Treasuries finished higher, with the yields on the 2-year note and the 30-year bond losing 1 basis point to 0.77% and 2.67%, respectively, while the yield on the 10-year note was flat at 1.83%.
Europe sees pressure despite upbeat GDP report, Asia mixed to close out the week
European equities traded lower to close out a negative week that saw the Stoxx Europe 600 Index fall 2.0%. Traders digested a plethora of mixed earnings reports in the region, while the global markets continue to assess yesterday’s disappointing monetary policy decision from the Bank of Japan. Also, today’s solid gain for the euro to extend its weekly jump versus the U.S. dollar is causing some concerns about the impact on corporate profits to flare-up.
Stocks moved lower even as preliminary Eurozone Q1 GDP growth of 0.6% q/q, topped the 0.4% estimate, and accelerated from the 0.3% expansion posted in Q4. In other economic news, German retail sales unexpectedly fell in March and the Eurozone consumer price inflation estimate came in at a larger decline than had been anticipated for April, while France’s consumer spending surprisingly rose. Bond yields in the region finished mixed.
Stocks in Asia finished mixed to end the week, though volume was lighter than usual with Japanese markets closed for a holiday. However, the Japanese yen remained in focus as it extended yesterday’s surge that came in the wake of the Bank of Japan’s monetary policy decision, where it disappointed the markets by not announcing further stimulus measures, opting to take time to assess the impact of its recent move to negative interest rates.
Chinese stocks remained hamstrung by volatility in the commodities markets in the wake of recent moves by exchanges to try to cool speculative trading, per Bloomberg, and as traders reflect on the recent flood of upbeat economic reports the nation has reported. South Korean equities traded to the downside, and Indian listings finished flat. However, strength in basic materials and oil & gas issues boosted Australian securities.
WEEKLY RECAP: Stocks see pressure on a heavy week of earnings and economic data
U.S. stocks were stymied this week, despite another rally in crude oil prices, as earnings season reached its apex and the economic front was robust, with monetary policy decisions in focus. Technology stocks came under pressure after Dow member Apple Inc. missed the Street’s quarterly expectations and offered a disappointing 3Q outlook, while Twitter Inc. posted softer-than-expected revenue and guidance, more than offsetting Facebook Inc’s upbeat results. So far this earnings season, about 77% of the 310 companies that have reported in the S&P 500 have topped profit forecasts, while only about 57% have bested sales projections, per data compiled by Bloomberg.
A ramp up in M&A activity, headlined by Abbott Laboratories’ $25.0 billion agreement to acquire St. Jude Medical Inc., failed to alleviate the pressure on the equity markets, along with the maintained Fed monetary policy stance, which appeared to ease concerns of an imminent rate hike. Treasury yields gave back some their recent rally following the Fed’s decision, which was not contradicted by this week’s domestic economic data as the first estimate of Q1 GDP growth slowed slightly more than expected, durable goods orders missed forecasts, and Consumer Confidence fell more than anticipated. The Bank of Japan (BoJ) stole some of the spotlight, as it disappointed the markets by refraining from deploying further stimulus measures, sending the yen surging to exacerbate global growth sentiment. The U.S. dollar pulled back in the wake of the Fed and BoJ’s decisions.
In our opinion, despite a weak Q1 GDP reading, the U.S. economy appears to be perking up a bit, especially on the manufacturing side. We don’t think we’re off to the races, but we believe modest growth is a good environment for potential stock gains although many feel the markets are fully and fairly valued in the U.S. today. The Fed held monetary policy steady, but indicated further hikes in 2016 were very possible. The market is currently expecting fewer hikes than the Fed, which could lead to some additional volatility as those expectations converge one way or the other. Currency movements have played a large part in global stock market activity. We may be getting to the point of some calming in the currency markets, which could help stocks generally, but central bank uncertainty likely means continued volatility.
THE WEEK AHEAD: Heavy data to kick off May
With earnings season heading into the second half, next week’s U.S. economic calendar will deliver a host of data as markets grapple with the timing of the next Fed rate hike. The ISM and Markit’s Manufacturing and Services Purchasing Managers Indexes (PMIs), factory orders, construction spending and the trade balance will get the ball rolling, while the week will culminate with Friday’s April non-farm payroll report. Recession concerns have been renewed and maybe with good cause and economic data desrves to be closely followed. However, the manufacturing rebound, leading indicators, non-excessive cyclical spending and signs from recession models all suggest although we’re unlikely to exit from a muddle-through state, the risk of recession is objectively low.
Key international reports slated for next week include: Australia—building approvals, the Reserve Bank of Australia monetary policy decision, trade balance and retail sales. China—Manufacturing and Services PMIs. India—Manufacturing and Services PMIs. Japan—vehicle sales and Manufacturing and Services PMIs. Eurozone—Manufacturing and Services PMIs and retail sales. U.K.—Manufacturing and Services PMIs.