Stocks fall Friday, tipping market into the red for the week | Wright …

Stocks fall Friday, tipping market into the red for the week | Wright …

Continuing their recent stop-and-go pattern of trading, U.S. stock prices fell sharply Friday, taking the major market indexes into negative territory for the week and, for many of them, for the year to date as well. The Dow declined 140 points or 0.8% Friday, matching the S&P 500′s 0.8% drop. NASDAQ, on renewed selling in internet stocks, lost 1.8% for the day and 0.5% for the week. Some corporate earnings reports that were not up to snuff, combined with anxiety over valuations of tech stocks, sent stock prices lower. This year’s saw-tooth stock market action continues to be a global affair, with European bourses down roughly in line with U.S. shares on Friday, and Asian markets down nearly as much in aggregate.

Consumer sentiment has improved this month, according to the University of Michigan survey released today. The index reading of 84.1 for April was better than the Street’s projection of 83 and was the highest level since last July. Too many more market sessions like Friday’s, however, would no doubt put a significant damper on consumer spirits. While consumer spending is expected to power U.S. GDP in the direction of 3% growth over the rest of this year, weak stock prices and the surprisingly sluggish recovery in housing activity from its winter slump represent threats to this forecast of improved economic growth.

The 30-year Treasury bond yield dropped to its lowest level (3.45%) since last June Friday on a mix of anxiety in the stock market and ongoing geopolitical concerns. Treasury returns swelled by 26 basis points for the week, stretching their year-to-date gain to 1.8%. Corporate bonds continue to outperform (48 bps of return for the week and over 4% YTD). High yield bonds were modestly lower Friday and, with many bond investors pursuing safer havens, HY bonds have only kept pace with Treasurys this quarter (after more than doubling Treasury returns during the first quarter).

In a case of “What have you done for me lately,” Facebook shares dropped 5% Friday. Announced after Wednesday’s market close, Facebook’s standout earnings report ended up giving the stock only a temporary boost on their way to a 2% decline for the full week. Considering the declines this past week in some other internet and social media stocks – Pandora down 13%, yelp down 11%, LinkedIn down 10%, Twitter down 7% – FB’s drop was relatively mild, although still somewhat of a surprise in light of the first quarter’s 72% revenue gain reported during the week. (Apple was another story, hanging on to all of its 9% post-earnings-report rise.) The NASDAQ Internet index fell to its lowest level in almost six months, down more than 4% Friday, with Amazon losing 10% as investors blanched at its ongoing heavy cap expenditures cum low profit margins.

Emerging markets suffered a tough week, with prices off as much as 5% in Russia and 3% in Shanghai. S&P reduced Russia’s sovereign debt rating to near junk; capital outflows related in part to the country’s annexation of Crimea totaled $51 billion in the first three months of 2014. Russia’s central bank increased its benchmark interest rate from 7% to 7.5% (where it is up two percentage points since February). With Friday’s decline, the ruble is down 9% so far in 2014. The Chinese yuan, down 3% this year, is at an 18-month low, partly by the design of the People’s Bank of China. Careful what you wish for, PBOC. Meanwhile, the price of gold ticked back above $1300 an ounce at week’s end, and crude oil dipped down in the neighborhood of $100 a barrel for the first time in nearly a month.

The week to come is chock-a-block with important economic reports, along with the Federal Open Market Committee’s policy meeting on Tuesday-Wednesday. In addition to next Friday’s jobs report for April and Thursday’s ISM report on manufacturing, the Commerce Department’s Bureau of Economic Analysis will give us its advance estimate on Q1 GDP on Wednesday, which is likely to show sub-2% growth as a result of the quarter’s bad weather. Today, the BEA released its first-ever quarterly look at GDP by industry (for Q4 2013). BEA’s new estimates show gross output as well, which provides a more comprehensive picture of U.S. industry, but does entail double-counting of sales of intermediate and final products. Here’s a link to the highlights of the BEA’s new quarterly statistics for Q4 2013: Gross Output by Industry

Reports/dates/facts/links to watch for over the next week:

  1. April 28: U.S. pending home sales for March; Dallas Fed manufacturing survey for April.
  2. April 29: FOMC meeting begins; S&P Case-Shiller home price indexes for February; Conference Board consumer confidence index for April.
  3. April 30: ADP report on private sector job creation in April; advance GDP report for Q1; employment cost index for Q1; FOMC announcement on rates and QE taper.
  4. May 1: U.S. personal income and consumer spending for March; ISM manufacturing survey for April; weekly jobless claims, latest week.
  5. May 2: U.S. non-farm employment and unemployment for April.

Copyright © 2014 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.

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Stocks fall Friday, tipping market into the red for the week | Wright …

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