Week 17 in Brief
U.S. stocks fell Friday on the last trading day of April, as investors took profits from first-quarter earnings of major tech companies, good economic data, and expectations that strong data may cause the Federal Reserve to ease back on monetary policy sooner than it expects.
How did the major indices perform?
- On Friday, the Dow Jones Industrial Average fell 185.51 points, or 0.5%, to 33,874.85, and notched a weekly decline of 0.5%, but is up 10.68% year to date.
- The S&P 500 lost 30.30 points, or 0.7%, to close at 4,181.17, ending the week virtually unchanged, but is up 11.32% year to date.
- The Nasdaq Composite slid 119.86 points, or 0.9%, to settle at 13,962.68, leaving it with a weekly loss of 0.4% but is up 8.34% year to date.
- The major averages slipped on Friday but notched substantial monthly gains: the Dow added 2.4%, the S&P 500 gained 5.6%, and the Nasdaq jumped 7%.
What drove the market?
- Big tech earnings: Investors sifted through earnings, including blockbuster results from Amazon.com and disappointing user numbers from Twitter Inc. The past week’s earnings deluge included largely positive results from the world’s largest technology companies. With just over a half of S&P 500 index companies reporting earnings for the quarter so far, about 87% beat market expectations, the highest level in recent years, according to Refinitiv. The earnings reflect that the world is moving again, with businesses investing in areas like technology and advertising, and consumer spending. Still, the primary trend remains higher but the tug of war continues between improving economic data and earnings, and the threat of higher interest rates and higher taxes.
- The tax question: Investors are concerned about Biden’s proposed tax increases. Analysts note that there is a scenario where you could see higher taxes, even if less onerous than what’s being talked about now, even as the Fed starts to taper. We are still positive for now but markets move on the margin. The fiscal spending boost is spread over many years whereas tax increases are more immediate. The risk-reward becomes a little less favorable.
- Economic data: Analysts said signs of weaker manufacturing and services activity in China and recession in Europe contributed to a softer tone Friday. China’s official manufacturing purchasing managers index declined to 51.1 in April from 51.9 in March, according to data released Friday by the National Bureau of Statistics. And the eurozone economy shrank at the beginning of 2021 for the second consecutive quarter, entering its second technical recession in a year. The dip wasn’t a surprise due to the pandemic, with growth expected to rebound as European countries get a better grip on vaccine distribution.
- In the US, personal income jumped by 21.1% in March, after a 7.1% fall in February, while spending surged 4.2%. A core reading of personal consumption and expenditure, or PCE, inflation rose 0.4% in March for a 1.8% year-over-year rise. The employment cost index showed that wages rose 1% in the first quarter and 2.7% over the past year.
- The University of Michigan said its consumer sentiment index rose to 88.3 this month from a preliminary 86.5 reading, its highest since the start of the pandemic.
Which stocks were in focus Friday?
- Amazon.com Inc. shares slipped 0.1% after the company late Thursday announced a second consecutive quarter of more than $100 billion in sales and predicted a third on the way.
- European Union regulators accused Apple Inc. of abusing its dominant position in the music-streaming market by imposing restrictive rules on the App Store. Shares closed down 1.5%.
- Shares of Twitter Inc. tumbled more than 15% after the social-media platform reported increased quarterly revenue on the strength of ad sales but saw its user numbers fall short of expectations.
- U.S. Steel Corp. reported sales slightly below expectations and swung to a GAAP profit. The steelmaker’s shares were up 2.3%.
- Chevron Corp. shares fell 3.6% after the oil and gas giant on Friday reported a first-quarter profit that topped expectations but revenue that came up short, amid continued weakness in downstream volume and margin due to the COVID-19 pandemic and Winter Storm Uri.
- Exxon Mobil Corp. shares closed 2.8% lower after the oil giant on Friday reported a first-quarter adjusted profit and revenue that beat Wall Street expectations, boosted by higher commodity prices and actions to cut costs.
- General Electric Co. disclosed Friday that it sold off more of the Baker Hughes Co. shares it owned, likely raising nearly $1 billion. GE shares were down 0.7%, while Baker Hughes shares lost 2.2%.
- Shares of Goodyear Tire & Rubber Co. dropped 3% Friday, reversing an earlier intraday gain after its earnings beat expectations, but management more than doubled the company’s full-year outlook for raw materials cost increases.
How did the European markets perform?
- European stocks ended lower on Friday after dismal GDP data but marked a third straight month of gains on strong corporate earnings and optimism about economic recovery from the COVID-19 pandemic.
- The pan-regional STOXX 600 index fell 0.3%, hovering below its all-time high, and ending the month 1.8% higher.
- Data showed the eurozone economy dipped into a second technical recession after a smaller than expected contraction in the first quarter but is now set for recovery as pandemic curbs are lifted amid accelerating vaccination campaigns.
- The German economy contracted by a greater-than-expected 1.7%, hit by renewed lockdowns, while the French economy grew more than expected.
- But strong earnings showed companies in the eurozone were well on their way to recover from the impact of the pandemic.
- Broadly, European earnings have come in much stronger than expected, with a higher than usual 71% of companies beating profit expectations in the first quarter, according to Refinitiv IBES data. A third of STOXX 600 companies have published results so far.
- Strong earnings from British firms helped the European retailer’s sector outpace its peers in April with a 6.7% bounce, while automobile stocks lagged as a global semiconductor shortage hurt production.
- Banking stocks came under pressure on Friday as eurozone bond yields eased from their highest level since January 2020. But the sector raced past its peers this week with a near 6% gain, driven by a swathe of strong earnings.
How did Asian markets perform?
Asian markets finished mixed as of the most recent closing prices. The Shanghai Composite gained 1.14%, while the Nikkei 225 led the Hang Seng lower. They fell 2.07% and 0.27% respectively.
Commodities and other assets
- Oil futures were under pressure on expectations of lower global demand, with the U.S. benchmark West Texas Intermediate crude for June delivery falling $1.43, or 2.2%, to settle at $63.58 a barrel.
- Gold futures for June GCM21 fell 60 cents, or 0.03%, to settle at $1,767.70 an ounce, notching its first monthly gain all year.
- The yield on the 10-year Treasury note was down nearly 1 basis point at 1.635%. Yields and bond prices move in opposite directions.
- The U.S. dollar skidded towards a fourth straight weekly decline and its longest weekly streak of losses since last July against a basket of major peers on Friday, as the Federal Reserve stuck to its message of ultra-low interest rates for longer.
- The ICE U.S. Dollar Index, a measure of the currency against a basket of six major rivals, rose 0.8% to 91.29.
- The dollar index was on course to end the week 0.2% lower, bringing its losses for April to 2.7%. A four-week losing streak would be the longest since the six-week slide to the end of last July, and the monthly loss would also be the biggest since July’s 4% slump.
- The euro traded 0.2% lower at $1.21020, near the two-month high of $1.2150 set the previous session. The shared currency is up 0.2% for the week and 3.3% for the month.
- The yen, a traditional haven, also traded flat at 108.88 per dollar, near the two-week low of 109.22 from Thursday, setting it up for a loss of about 0.9% for the week.
- China’s yuan traded near its strongest since March 3 in the offshore market, last changing hands at 6.4711 per dollar, even as gauges of Chinese factory activity showed a loss of momentum in April.
- In cryptocurrencies, ether hovered below a record high of $2,800.89 set on Thursday, after being lifted this week on media reports about the European Investment Bank’s plans to launch a “digital bond” sale on the ethereum blockchain network.
- More earnings reports and economic data are released in the week ahead, including vaccine makers Pfizer and Moderna.
- Watch out for our Monday Weekly Market Outlook that provides insights on what’s coming up that week.