Day Traders Diary
Investors took some money off the table on Friday, cashing in on the stock market's best week in over two months. However, a handful of upbeat earnings reports from heavy hitters like Alphabet (GOOGL 924.52, +33.08) and Amazon (AMZN 924.99, +6.61) kept losses in check. The S&P 500 and the Dow both settled lower by 0.2% while the Nasdaq finished flat. For the week, the S&P 500 finished with a gain of 1.5%.
Only three of eleven sectors finished in positive territory on Friday, but, luckily, one of those three was the top-weighted technology sector (+0.3%). The sector combated the eight laggards by leaning heavily on Alphabet, which added 3.7% on better than expected earnings and revenues. Microsoft (MSFT 68.46, +0.19) eventually came around, but the company spent the majority of Friday's session in the red despite beating earnings estimates. Like Microsoft, Intel (INTC 36.15, -1.28) beat bottom-line estimates. However, unlike Microsoft, INTC never reversed early selling pressure, settling lower by 3.4%. The company's negative performance rippled throughout the semiconductor industry, evidenced by the 1.7% decline in the PHLX Semiconductor Index.
The influential health care (+0.2%) and energy (+0.1%) sectors also finished in the green. Exxon Mobil (XOM 81.65, +0.39) and Chevron (CVX 106.70, +1.23) helped the energy sector in its outperformance, adding 0.5% and 1.2%, respectively, following their latest earnings reports. XOM beat earnings estimates while CVX reported below-consensus revenue on earnings of $1.41 per share, which may not be comparable to consensus estimates.
On the flip side, the heavily-weighted financial sector weighed on the broader market, losing 0.9%. A flattening of the yield curve certainly didn't help matters, but the loss was more a result of profit taking efforts in light of the 2.6% week-to-date gain that the financial group carried into Friday's session. Selling pressure at the short end of the yield curve paired with some buying at the long end left the 2-yr yield (1.27%) one basis point higher and the 10-yr yield (2.28%) one basis point lower.
While the action in the Treasury market failed to clearly assign a risk-on or risk-off tone to today's session, the domestically-oriented Russell 2000 (-1.2%) and the CBOE Volatility Index (10.78, +0.42, +4.1%) pointed to slight softening in investor sentiment.
Lightly-weighted sectors like telecom services (-1.1%), real estate (-0.6%), and materials (-0.7%) populated the bottom half of the leaderboard while the remaining groups finished with losses of no more than 0.4%.
Investors received several economic reports on Friday, including the advance estimate of first quarter GDP, the first quarter Employment Cost Index, April Chicago PMI, and the final reading of the University of Michigan Consumer Sentiment Index for April:
- The first reading of first quarter GDP pointed to an expansion of 0.7%, while the Briefing.com consensus expected a reading of 1.1%. The first estimate of first quarter GDP Deflator came in at 2.2%, which above the Briefing.com consensus of 2.1%.
- The key takeaway from the report, however, was that the growth in personal consumption expenditures (PCE) was decidedly weak, increasing just 0.3%, which was the weakest growth in more than seven years.
- The first quarter Employment Cost Index rose 0.8%, while the Briefing.com consensus expected an uptick of 0.6%.
- The key takeaway from the report is that compensation costs are moving higher, which will create some profit margin constraints while at the same time lending employees some increased spending potential.
- Chicago PMI for April increased to 58.3 from 57.7 in March while the Briefing.com consensus expected a reading of 56.9.
- The key takeaway from the report is that the New Orders Index moved to an almost three-year high in April, offering an encouraging signal about the economic outlook for the Chicago Fed region.
- The final reading of the University of Michigan Consumer Sentiment Index for April declined to 97.0 (Briefing.com consensus 98.0) from 98.0 in the preliminary reading.
- The key takeaway from the report is that consumer sentiment remains high notwithstanding partisan political views among consumers about the economic outlook.
On Monday, investors will receive March Personal Income (Briefing.com consensus 0.3%) and Personal Spending (Briefing.com consensus 0.1%) at 8:30 ET while March Construction Spending (Briefing.com consensus 0.4%) and the April ISM Index (Briefing.com consensus 56.5) will cross the wires a little later at 10:00 ET.
- Nasdaq Composite +12.3% YTD
- S&P 500 +6.5% YTD
- Dow Jones Industrial Average +6.0% YTD
- Russell 2000 +3.2% YTD
Week In Review: France-Related Jitters Recede
The French people narrowed their presidential race to two candidates last Sunday--Emmanuel Macron and Marine Le Pen--with the results fueling a buying frenzy around the world on Monday. According to the most recent polls, Mr. Macron, who is a proponent of tighter EU integration, has a comfortable advantage over Ms. Le Pen, who would like to conduct a French referendum on eurozone membership, leading investors to believe the EU has dodged the latest populist bullet. The run-off will be conducted on Sunday, May 7.
Buyers took center stage again on Tuesday in an encore performance that left the S&P 500 higher by 1.7% after the first two sessions of the week. The positive sentiment surrounding the French vote lingered, but earnings were the focal point with Dow components Caterpillar (CAT), McDonald's (MCD), and DuPont (DD) feeding the bulls with better than expected top and bottom lines.
However, the stock market hit a speed bump on Wednesday amid the unveiling of President Trump's tax outline. The general framework of the plan was encouraging to investors, but specific details, like how it will be paid for, were in short supply. Without any offsetting sources of revenue, the tax cuts will add to the budget deficit, which will be a difficult pill for some conservative lawmakers to swallow.
Range-bound action continued throughout the remainder of the week as investors responded to upbeat earnings reports with caution, hesitant to extend the stock market's already solid 2017 gain amid disappointing first quarter GDP growth (+0.7%; Briefing.com consensus 1.1%). In addition, continued geopolitical tension related to North Korea weighed on investor sentiment.
In the end, the stock market's early-week rally more than made up for the second-half slump, leaving the S&P 500 with a weekly gain of 1.5%. The upbeat sentiment also led to an increase in rate-hike expectations. The fed funds futures market points to the June FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 66.6%, up from last week's 48.5%.
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