Benchmarks ended in the red on Friday following investor concern over new equity market regulations in China and Greece’s debt crisis. Meanwhile, AmEx’s dismal earnings results weighed on the Dow. The S&P 500 and the Dow both registered their worst one day percentage decline in more than three weeks on Friday. Benchmarks also finished in negative territory for the week after two successive weekly gains.
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The Dow Jones Industrial Average (DJI) declined 1.5% or 279.47 points to close at 17,826.30. The Standard & Poor’s 500 (S&P 500) decreased 1.1% to 2,081.18. The tech-laden Nasdaq Composite Index closed at 4,931.81; losing 1.5%. The fear-gauge CBOE Volatility Index (VIX) increased 10.2% to settle at 13.89. A total of about 7.1 billion shares were traded on Friday, more than the month to date average of 6.2 billion. Decliners outpaced advancing stocks on the NYSE. For 78% stocks that declined, 19% advanced.
Implementation of new market regulatory measures in China dragged benchmarks down on Friday. The Securities Association of China allowed fund managers to lend shares for short selling in order to increase the supply of shares. Types of shares that investors can short sell will be increased from 900 to 1,100. Further, the China Securities Regulatory Commission mentioned that it has levied sanctions to control over-the-counter margin trading. These moves were taken by Chinese regulators to slow the recent surge in the country’s stock exchanges.
Concerns over Greece defaulting on its heavy debt burden also had a negative impact on benchmarks. Despite sustained efforts, a series of international negotiations with the country’s international creditors have failed to secure more aid. On Apr 24, Eurozone finance ministers are expected to hold fresh negotiations with Greece on economic and political reforms which must be implemented in return for further aid.
Meanwhile, International Monetary Fund revised the country’s growth projection “significantly” downward to 2.5% for this year and 3.7% for the next year on Greek default fears.
The Dow was adversely affected by American Express Company (AXP – Analyst Report). Shares of AmEx dropped 4.4% a day after the company reported first quarter revenues of $7.95 billion, down 3% from the prior-year quarter. AmEx’s revenues took a beating due to a stronger U.S. dollar. However, AmEx’s earnings per share for the quarter came in at $1.48, beating the Zacks Consensus Estimate of $1.37.
Adding to the bearish sentiment was rise in consumer prices in March, which raised concerns about the timing of interest rate hike. The US Bureau of Labor Statistics came out with consumer price data; wherein it reported Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2% in March. However, the increase was less than the consensus estimate of a rise of 0.3%. Consumer prices increased in March mostly due to higher gasoline prices.
Separately, the Conference Board’s leading economic index increased 0.2% in March after it rose a meager 0.1% in February. However, the rise was less than the consensus estimate of an increase by 0.3%. Additionally, the University of Michigan and Thomson Reuters’ preliminary reading of consumer sentiment was at 95.9 in April, which was more than the consensus forecast of an increase to 94.1.
Yesterday’s losses were broad based, with all 10 S&P 500 sectors ending in the red. The Consumer Discretionary Select Sector SPDR (XLY) declined 1.5%, the highest among the S&P 500 sectors. Key stocks from the sector such as The Walt Disney Company (DIS – Analyst Report), The Home Depot, Inc. (HD – Analyst Report), Comcast Corporation (CMCSA – Analyst Report), Amazon.com Inc. (AMZN – Analyst Report) and McDonald’s Corp. (MCD – Analyst Report) decreased 1.3%, 1.1%, 2.1%, 2.7% and 0.8%, respectively.
The Technology Select Sector SPDR (XLK) dropped 1.4% and was the second biggest loser among the S&P 500 sectors. Key holdings from the sector including Apple Inc. (AAPL – Analyst Report), Microsoft Corporation (MSFT – Analyst Report), AT&T Inc. (T – Analyst Report), Google Inc (GOOGL – Analyst Report) and International Business Machines Corporation (IBM – Analyst Report) decreased 1.1%, 1.3%, 0.7%, 1.9% and 1.5%, respectively.
For the week, the S&P 500, the Dow and the Nasdaq declined 0.9%, 1.3% and 1.3%, respectively. Benchmarks finished in negative territory for the week amid a mixed bag of economic data. Housing data was weaker than expected and claims for unemployment benefits reached the highest level in six weeks during the second week of April. One the other hand, manufacturing data came in better than anticipated.
Investors also feared that a stronger dollar and weaker oil prices may affect first quarter earnings results. While, a stronger U.S. dollar is expected to have a negative impact on multinationals’ earnings results, decline in oil prices since mid of last year are expected to weigh on energy companies.
Federal Reserve officials’ remarks on rate hike also weighed on the broader markets. Officials agreed that Fed should wait for economic conditions to improve before hiking interest rates
Among the positives was a flurry of upbeat earnings results. Major companies including JPMorgan Chase & Co. (JPM – Analyst Report), Citigroup Inc. (C), Goldman Sachs Group Inc (GS), BlackRock, Inc. (BLK), UnitedHealth Group Inc. (UNH), Netflix, Inc. (NFLX), Intel Corporation (INTC), Delta Air Lines, Inc. (DAL) and Johnson & Johnson (JNJ) reported better than expected earnings results. Separately, European Central Bank’s decision to keep interest rates unchanged while continuing with its asset purchasing program was welcomed by investors.
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