After The Close
The major U.S. averages wrapped up a surprisingly mixed week of trading on an appropriately inconclusive note. Even the NASDAQ, which opened the session substantially higher behind strong earnings from a slew of industry leaders, fell back to its breakeven line as the day wore on and well into the afternoon. The muted nature likely disappointed the bulls, especially considering an impressive first-quarter GDP reading (the first of several in the coming weeks) that initially drove most stocks higher in value. The 2.3% growth rate helped to keep U.S. Treasury yields under the 3% threshold, but failed to sustain a full-day uptick in equity trading.
On the earnings front, investors cheered Amazon.com’s (AMZN) outperformance, which included the announcement that the price of Amazon Prime was being raised 25% on May 1st. Conversely, Google parent Alphabet (GOOG) shed some value on the worries over the long-term benefits of its aggressive capital expenditure commitments. The industry sectors reveal a mixed tone to today’s session, as well. Selling amongst basic materials and energy issues offset a particularly strong showing in the telecommunications, utilities, and consumer goods categories. Overall, advancing shares held a slim edge over their declining counterparts.
Meanwhile, domestic crude oil slipped, albeit slightly, despite receiving support from possible sanctions by the United States on Iran. A strengthening U.S. dollar, plus concerns about market tightening due to tensions in Venezuela, contributed to today’s mixed tone in the commodity market. A supportive and successful drilling accord from OPEC, as well as reduced stockpiles at home, could help to drive prices higher. However, it seems likely that investors require some real process on the latter front before allowing the per-barrel valuation to rise still higher.
Looking ahead, with investors mostly unmoved by recent positivity stemming from Corporate America, we believe it unlikely the averages will experience a significant broad-based increase due to the quarterly reporting season. Indeed, it appears that the benefits of the U.S. Tax Cuts and Jobs Act, as well as the expectation of solid corporate earnings, were largely priced into equity prices before the current reporting period began. Prolonged growth in the economy, statements and monetary moves by the Federal Reserve, and favorable geopolitical developments are seemingly needed to offset recent market volatility and lift equities beyond their trading range. Stay tuned.
– Robert Harrington
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
Before The Bell
A modest decline in yields on the 10-year Treasury note helped stocks get off on a bullish note yesterday. To be sure, there also was some cheering on the earnings front, as erstwhile social networking stalwart Facebook (FB) performed better-than-expected on the profit line. Indeed, that stock soared in early trading. However, our sense is that the initial gains were also forged by a drop in the note yield from 3.02% to just under 2.99%. That was not much of a pullback, but apparently enough to get the level of anxiety among the bulls to lessen just a touch.
Meanwhile, unlike some recent days when the market wilted after an initial buying burst, equities were strengthening further as we passed the first hour of trading, with the Dow Jones Industrial Average soaring by more than 200 points. The gains in the NASDAQ, buoyed by strength on the technology side, were proportionately greater. Of course, this early market upsurge was more than just about Facebook. We also saw outsized gains in the shares of Dow component Visa (V – Free Visa Stock Report). That financial services giant easily exceeded expectations on the bottom line for the second fiscal quarter. The stock jumped, in response.
So, the bulls were clearly in charge on this penultimate trading session of the week, with the NASDAQ, as noted, in the lead, gaining better than 100 points, at one time late in the morning. The market's surge then continued, even intensifying, as the morning ended on the East Coast. Meantime, even though Treasury note yields edged back up to 3.00%, strong earnings from a number of U.S. companies again appeared to be carrying the day. Then, after some brief selling that clipped a little of the equity market's gains, the upturn resumed, lifting the Dow back to a gain north of 200 points again.
The market's advance would then continue into the first part of the afternoon, with the key averages, again led by the NASDAQ, reaching the day's best levels to that time. The advance would persist, even intensify, as the afternoon moved further along, with strong earnings enabling traders to look past the recently higher yields, at least for one day. As to Treasury yields, there was a modicum of relief as the 10-year note stayed just at 3.00% late into the afternoon. It had been a surge in yields to past 3.00% over the past couple of days that had underpinned some renewed confidence by the heretofore forlorn bears. But not yesterday.
The Dow's advance would then top the 300-point total as we approached the final hour of trading. This morning's just-released data for first-quarter GDP (more below on this upward surprise) was of some concern, as was next week's Federal Reserve FOMC meeting. Overall, though, it would remain a joy ride for the bulls. True, the market did give back some gains as we neared the close, perhaps on anticipation ahead of the GDP report and nervousness about interest rates and next week's FOMC meeting. Still, the gains remained sizable, with a closing gain for the Dow of 239 points. The NASDAQ's increase was 115 points.
Looking out to the week's final session, we see that stocks were higher in overnight action in Asia, while in Europe, the bourses are posting early solid gains. Also, oil is edging down and Treasury note yields, which ended at 2.99% late yesterday, are now passing hands at 2.98%. As to the GDP report, issued at 8:30 (EDT) this morning, we see that growth in the first quarter came to 2.3%. Expectations had been for a rise of just 1.8%. The futures, boosted by a strong bottom-line showing late yesterday from chipmaker and Dow component Intel (INTC – Free Intel Stock Report) are mixed in the pre-market hours, with the Dow indicating a lower start and the NASDAQ, with suggested strength in the aforementioned Intel and in Amazon (AMZN), also on an earnings beat, pointing to a higher open.
Breaking the GDP report down, we see that in addition to overall modest strength in the economy (growth was still off from the fourth quarter's 2.9%), the upturn was helped individually by positive contributions from nonresidential fixed investment, exports, private inventory investment, federal government spending, and state and local government spending. Decelerations in personal consumption expenditures and in residential fixed investment held back results. Note that this is the first of three estimates for opening-quarter GDP, with a revision, based on more extensive source data due out late next month.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
