After The Close
The stock market traded higher this morning, but weakened considerably as the session progressed. At the close of the day, the Dow Jones Industrial Average was down 148 points; the broader S&P 500 Index was off 22 points; and the NASDAQ was lower by 54 points. Market breadth was somewhat negative, with decliners ahead of advancers on the NYSE. Most of the major stock groups retreated today, with sizable losses in the healthcare and basic materials issues. In contrast, the energy names managed to advance, helped by higher crude oil prices.
It was a somewhat busy day for economic news. Specifically, personal incomes rose 0.3%, with spending up 0.4%, during the month of March. These figures, more or less, met expectations. Elsewhere, pending home sales increased 0.4% in March, which was a somewhat weaker-than-anticipated reading. Tomorrow, the ISM Index for April will be released, along with the latest monthly construction spending numbers.
In the corporate arena, numerous companies delivered their results over the past 24 hours. Among the larger names, shares of McDonald’s (MCD – Free McDonald’s Stock Report) moved up, after the restaurant operator posted solid results. Tomorrow, we will hear from Apple Inc. (AAPL – Free Apple Stock Report) and Pfizer (PFE – Free Pfizer Stock Report). In M&A news, Sprint (S) and T-Mobile (TMUS) have agreed to merge.
Technically, the stock market remains stuck in a trading range. With the first-quarter earnings season well underway, and the summer months approaching, it is unclear what will serve as the catalyst needed to lift the market in the weeks ahead.
— Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
Trading in the month of April, which concludes after today’s session, has at times been volatile, but in the end the major market averages are currently none too far removed from where they began the month. Overall, the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index are holding slight gains with the final trading session of the month set to begin. There were a number of topics that drove trading over the 30-day stretch. On the negative side were concerns about deteriorating trade relations between the United States and China, the world’s two largest economies, worries about inflation and rising bond yields, and tensions in the Middle East. Conversely, stocks got some support from a strong first-quarter reporting season and solid, if not spectacular, data on the U.S. economy.
As for the most recent five-day stretch of trading on Wall Street, the bears held a slight advantage in a week turned into a seesaw event for stocks. The primary force behind trading were fixed-income yields. Early in the week, stocks were under pressure as bond yields rose, with the headline being the rate on the 10-year Treasury note hitting 3.00% for the first time since January, 2014. That brought concerns about inflation and the effect it may have on economic growth in the coming quarters. Then late in the week, stocks rallied on some strong earnings reports and economic data, with a better-than-expected initial reading on first-quarter GDP pushing bond-yield lower on Friday and easing some earlier week concerns about inflation.
On Friday, the aforementioned indexes put in a ho-hum performance, not straying too far from the neutral line. For the session, the Dow Jones Industrial Average was off 11 points, while the NASDAQ and S&P 500 Index finished one and three points higher, respectively. Overall, there was a bullish tone to trading, as advancing issues led decliners by nearly two-to-one on the Big Board and the margin was slightly positive on the NASDAQ Exchange. The pull back in bond yields, at least for the moment, quelled fears about inflation. It also prompted some notable rotation among the 10 major equity groups. The higher-yielding sectors were in favor, while the more economically sensitive categories were under modest pressure. The banking stocks were hurt by the pull back in bond yields, while the commodities groups were hurt by a stronger dollar, which makes them less attractive in overseas markets as they are priced in greenbacks.
The news that had the biggest impact on the U.S. dollar and fixed-income yields was the Commerce Department’s report on first-quarter GDP on Friday. Specifically, the release showed that the U.S. economy expanded by 2.3% in March period, surpassing the consensus expectation of 2.0%. The release was a bit of a Goldilocks report for the market, as it continued the narrative that the economy is growing at a healthy pace, but the weakest performance in consumer spending in five years punched a hole in the inflation bubble that hurt the market early in the week. There is a sense that the recent wage pressure is not leading to overall pricing pressure.
Meantime, Friday brought another heavy dose of earnings data from Corporate America, including four reports from Dow-30 companies. Of note, the results were mixed for oil giants Chevron (CVX – Free Chevron Stock Report) and Exxon Mobil (XOM – Free Exxon Mobil Stock Report). In a nutshell, Chevron topped expectations in the March quarter, while Exxon Mobil fell short of its forecasts, and the stocks of both companies responded accordingly. And just minutes ago, McDonald’s (MCD - Free McDonald’s Stock Report) reported quarterly results, including a higher-than-expected 2.9% rise in quarterly sales at established U.S. restaurants, which Wall Street has greeted kindly. Shares of the fast-food giant are up nicely in pre-market action. Technology behemoth Apple (AAPL – Free Apple Stock Report) is scheduled to release its latest quarterly results after the closing bell tomorrow. Overall, the first-quarter earnings results for the S&P 500 companies have been rather strong to date, but the overall boost to stocks has not been overwhelmingly positive, as there is a sense on Wall Street that first-quarter results may prove to be the high-water mark in 2018. We shall see on that front.
Looking to the week at hand, the earnings news will remain heavy, headlined by reports from five Dow-30 components. On the business beat, we will receive a number of important releases, including the much-anticipated report on employment and unemployment for the month of April on Friday. The jobs data will be scrutinized closely for more clues about wage pressures and signs of inflation. Prior to the jobs report, we will get data on manufacturing and nonmanufacturing activity and the trade gap. And just moments ago the Commerce Department released its latest data on personal income and spending. Specifically, personal income increased $47.8 billion (0.3%) in March, while personal consumption expenditures (PCE) increased $61.7 billion (0.4%). Excluding food and energy, the PCE price index rose 0.2%, which further indicates that inflation is still running at a modest level.
Even with the plethora of earnings and economic data this week, it all may take a backseat to the commencement of the Federal Reserve’s FOMC meeting tomorrow morning. The expectation is that the central bank will hold rates steady this month, but investors may be most interested in hearing the lead bank’s outlook for the rest of this year. (The current expectation among economic pundits is that the Fed will raise rates two more times in 2018.) A summary of what the central bank is thinking will come on Wednesday afternoon (at 2:00 P.M. EDT) with the release of the Fed’s monetary policy statement and in the days shortly thereafter when many of the Fed leaders are scheduled to give speeches. The focus will be on what the Fed has to stay about inflation and whether it is perceived as taking a more hawkish or dovish stance on monetary policy going forward.
With less than an hour to go before the start of the new trading week stateside, the equity futures are presaging a higher opening for the U.S. stock market. Overseas, the trading has been bullish so far to start the new week. The main indexes in Asia finished nicely higher overnight, while the major European bourses are in positive territory as trading moves into the second half of the session on the Continent. The major averages are likely to get a boost today from corporate earnings and some merger and acquisition activity, including more developments in the long talked about possible merger of Sprint (S) and T-Mobile (TMUS). Stay tuned.
— William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
