The major averages ended Friday little changed despite strong earnings reports from Amazon (AMZN 1572.62, +54.66), Microsoft (MSFT 95.82, +1.56), and Intel (INTC 52.73, -0.32) -- three high-profile names that helped pace last year's rally. The S&P 500 finished a tick higher (+0.1%), the Nasdaq settled flat, and the Dow closed a tick lower (-0.1%).
Amazon shares soared at the opening bell, adding nearly 8.0%, after the internet retail giant reported blowout first quarter results -- easily beating both top and bottom line estimates -- and raised its profit guidance for the second quarter. However, the bullish sentiment soon dampened; AMZN shares quickly slashed their gains in half, eventually closing higher by 3.6%.
Microsoft and Intel shares went through a similar experience after both companies reported better-than-expected quarterly results; Microsoft trimmed its opening gain of 4.0% to 1.7% by the closing bell, while Intel gave back all of its opening gain of 5.0% and then some, finishing lower by 0.6%.
The dialed back buying of these once invincible-looking stocks helped strengthen the narrative that earnings are at, or near, a peak for this growth cycle.
In other earnings news, energy heavyweight Chevron (CVX 126.62, +2.40) beat earnings estimates for the first quarter, but its peer Exxon Mobil (XOM 77.79, -3.07) missed the mark; Chevron shares ended higher by 1.9%, while Exxon shares settled lower by 3.8%. Meanwhile, shares of Starbucks (SBUX 58.36, -1.02) lost 1.7% after the coffee giant's earnings came in as expected.
Seven S&P 500 sectors finished Friday in positive territory, while four groups finished in the red. Energy (-1.2%) was by far the weakest group, suffering from Exxon's disappointing earnings, while telecom services (+1.8%) led to the upside following a Reuters report that a merger deal between Sprint (S 6.50, +0.50) and T-Mobile (TMUS 64.52, +0.42) could be struck in the next three days.
U.S. Treasuries rallied for the second day in a row on Friday, sending the benchmark 10-yr yield three basis points lower to 2.96%.
In geopolitics, the leaders of North and South Korea held historic talks on Friday, agreeing to sign a pact that seeks permanent and solid peace and stating an aim to work towards a complete denuclearization of the Korean Peninsula. Separately, German Chancellor Angela Merkel met with U.S. President Donald Trump at the White House to discuss the Iran nuclear deal, trade, and other issues.
The Bank of Japan kept interest rates unchanged, as expected, but removed from its policy statement a reference to reaching its 2.0% inflation target in fiscal year 2019/2020.
Reviewing Friday's economic data, which most notably included the preliminary reading of first quarter GDP; investors also received the first quarter Employment Cost Index and the final reading of the University of Michigan Consumer Sentiment Index for April:
- First quarter GDP increased at an annualized rate of 2.3%. That was above the Briefing.com consensus estimate of 2.1%, yet it was a deceleration from the fourth quarter growth rate of 2.9%.
- The key takeaway from the report is that consumer spending was weak in the first quarter, increasing just 1.1% after increasing 4.0% in the fourth quarter. Real final sales, which exclude the change in inventories and are often viewed as the better gauge of growth, were up only 1.9% versus the prior ten quarter average of 2.2%.
- The first quarter Employment Cost Index rose 0.8%, while the Briefing.com consensus expected an increase of 0.7%.
- The key takeaway from the report is that wages and salaries, and benefits, are trending higher. That will support the burgeoning inflation narrative and it will keep the Federal Reserve inclined to stay on its rate-hike path.
- The final reading of the University of Michigan Consumer Sentiment Index for April rose to 98.8 (Briefing.com consensus 98.0) from 97.8 in the preliminary reading.
- The key takeaway from the report is that the monthly drop was due to worries about trade policies and expectations for rising interest rates.
On Monday, investors will receive Personal Income (Briefing.com consensus +0.4%), Personal Spending (Briefing.com consensus +0.4%), and PCE Prices (Briefing.com consensus 0.0%) for March, the Chicago PMI for April (Briefing.com consensus 58.0), and March Pending Home Sales (Briefing.com consensus +1.5%).
- Nasdaq Composite: +3.1% YTD
- Russell 2000: +1.4% YTD
- S&P 500: -0.1% YTD
- Dow Jones Industrial Average: -1.7% YTD
Week In Review: Little Changed Following Busy Week
The S&P 500 was up and down this week, but ended little changed, closing a tick below its flat line. The Nasdaq Composite and the Dow Jones Industrial Average, meanwhile, finished the week with losses of 0.4% and 0.6%, respectively, and the small-cap Russell 2000 lost 0.5%. Earnings were the focal point, but rising Treasury yields, policy decisions from the European Central Bank and the Bank of Japan, and a historic meeting between the leaders of North and South Korea also received some attention.
This week was the busiest week of the first quarter earnings season, with more than a third of S&P 500 companies reporting their results -- which largely came in better than expected. However, the market's reaction didn't always correlate with the upbeat headlines.
For instance, in the industrial sector, 3M (MMM), Caterpillar (CAT), Lockheed Martin (LMT), and United Tech (UTX) all dropped on Tuesday after reporting their first quarter results, which, headline-wise, came in above-consensus. Caterpillar initially shot higher, but reversed sharply, taking the broader market with it, after saying in its post-earnings conference call that margins in the first quarter will be the "high water mark" for the year. The industrial sector finished the week at the bottom of the sector standings, losing 3.2%.
Conversely, the consumer discretionary sector finished with a solid gain of 1.1%, boosted by a blowout quarter from Amazon (AMZN) -- which easily topped both earnings and revenue estimates for the first quarter. Chipotle Mexican Grill (CMG) also rallied on its better-than-expected results, surging nearly 25% on Thursday to close at its highest level in nearly a year.
A number of technology heavyweights reported their first quarter earnings this week, including Alphabet (GOOG), Facebook (FB), Microsoft (MSFT), and Intel (INTC). Facebook soared after handily beating consensus estimates, Microsoft climbed after also beating on the top and bottom lines, Intel slid despite an upbeat report, and Alphabet tumbled after its weaker-than-expected operating margins overshadowed its much better-than-expected earnings and revenues. The top-weighted technology sector finished the week lower by 0.6%.
Outside of earnings, investors kept a close eye on Treasury yields, which touched new multi-year highs on Wednesday before slipping in the final two sessions. The benchmark 10-yr yield crossed the psychologically important 3.0% mark for the first time in over four years, going as high as 3.03%, before settling the week at 2.96%.
The preliminary reading of first quarter GDP crossed the wires on Friday, showing an annualized increase of 2.3% -- which was better than the Briefing.com consensus of +2.1%, but a deceleration from the fourth quarter growth rate of 2.9%. The key takeaway from the report is that consumer spending was weak in the first quarter, increasing just 1.1% after increasing 4.0% in the fourth quarter. Real final sales, which exclude the change in inventories and are often viewed as the better gauge of growth, were up only 1.9% versus the prior ten quarter average of 2.2%.
Across the pond, the European Central Bank released its latest policy directive on Thursday morning, which, as expected, left interest rates unchanged and confirmed that net asset purchases will remain at the current monthly pace of EUR30 billion until the end of September 2018, or beyond, if necessary.
In Asia, the Bank of Japan also left interest rates unchanged, as expected, but removed from its policy statement a reference to reaching its 2.0% inflation target in fiscal year 2019/2020. However, the biggest story of the week in Asia came from the Korean Peninsula, where the leaders of North and South Korea came together for a historic summit. The two leaders signed a pact that seeks permanent and solid peace and stated an aim to work towards a complete denuclearization of the Korean Peninsula.
Headlines provided by Briefing.com