Stocks rally late again on Friday | Wright Investors' Service

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Down for most of the trading day, stocks pulled out a win for Friday on late-day trading by institutions and indexed portfolios to reflect the annual rebalancing of the Russell Index constituents. The Dow Jones Industrials, thanks to an 80-point swing in the last two hours of trading, finished up 6 points for Friday, trimming the week’s loss to 95 points or 0.6%.

The S&P 500 finished up 0.2% for Friday and was down just 0.1% from the prior Friday’s all-time high. As with the Dow, the S&P 500 spent most of Friday trading in the red before the late-day index rally landed it solidly in the black. Unlike the two blue-chip averages, NASDAQ was up almost from the start of trading Friday and finished with a 0.4% gain, putting it at its highest level since April 2000.

Acting better in recent weeks, small- and mid-cap stocks closed this past week with price gains of 0.7% (S&P 600 SmallCaps) and 0.5% (S&P 400 MidCaps) on Friday. Social media stocks, despite some sketchy trading on Friday, were mostly up nicely for the week. Facebook finished the week with a nearly 5% gain to its highest level in three months. Twitter (+4%), Pandora (+8%), Groupon (+9%) had good weeks, and GoPro, the camera maker and this week’s big Initial Public Offering, had a very good first two days of trading, rising 130% Thursday and another 14% Friday.

Among other active stocks Friday, Nike was up 1% on a good report on fiscal Q4 earnings. On the flip side, DuPont lost 3% Friday after cutting its earnings guidance for the year on weakness in its agricultural business on lower corn prices. BNP Paribas said it would cut its dividend and sell bonds to help finance a reported $9 billion settlement with the U.S. Justice Department of criminal charges over financial dealings that violated U.S. sanctions against Iran and other rogue nations.

Today’s consumer sentiment report from the University of Michigan (as was the case with Tuesday’s report on consumer confidence from the Conference Board) indicates that consumers feel relatively good about economic prospects and their financial well-being. The Conference Board’s confidence index reading for June of 85.2 was the highest since January 2008, although it is still a good deal shy of its pre-recession average of 98. Likewise, the University of Michigan’s latest sentiment reading of 82.5, while better than the Street’s consensus forecast (82.0), is considerably below its pre-recession average of 88. When it comes to consumer confidence, this may be a case of “been down so long, it seems like up.”

The surprisingly weak Q1 GDP report on Wednesday and May’s soft consumer spending data have caused a number of economists at Wall Street firms to cut their forecasts for growth in the second quarter and the rest of this year. According to bloggers at the Wall Street Journal, Goldman Sachs has trimmed its Q2 GDP growth target to 3.5% from 4.1%; Barclays cut even deeper, to 2.9% from 4.0%; and RBS reduced its growth forecast to 2.2% from 2.7%.

Bond prices fell modestly on Friday, but were nicely higher for the week. High-yield bonds were a notable exception, declining modestly in price for the week, according to the Friday report from Barclays, perhaps on concerns raised by Wednesday’s reported 2.9% rate of decline in Q1 U.S. GDP. Economic reports came up way short of market expectations this past week, dropping the Citi Economic Surprise Index to its lowest level since May 1. The 10-year Treasury yield, which got as low as 2.51% during trading Friday, closed at 2.53%, down 8 basis points for the week.

Foreign stocks were generally weak on Friday and for the past week. Any lead that foreign equities might have had on the U.S. market for the second quarter appears to have been lost. European stocks were down between 1.7% (Germany) and 3.0% (Italy) for the week. In Asia, Japan’s Nikkei 225 lost 1.7% for the week, 1.4% of it coming on Friday; Hong Kong, Shanghai and Korean shares managed gains for the week. Sovereign bond yields were generally lower by up to 10 bps for the week.

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

June 30: Chicago purchasing managers’ survey for manufacturing (June); NAR’s pending home sales index (May); Dallas Fed regional manufacturing survey (June).
July 1: ISM manufacturing composite index (June); construction spending (May); June auto sales.
July 2: ADP national private sector employment report (June); factory orders (May).
July 3: Labor Department jobs report (June); weekly unemployment claims; ISM non-manufacturing index (June);
July 4: U.S. markets closed for Independence Day.

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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