The Week In Review


The stock market finished the week on a broadly lower note with the Nasdaq and S&P 500 enduring their worst week since 2012. The Nasdaq Composite fell 1.3%, ending the week with a loss of 3.1%. For its part, the S&P 500 settled lower by 1.0% to end the week down 2.7%.
Equity indices faced selling activity at the open after the overnight session failed to deliver any noteworthy respite following yesterday's drubbing. The lack of a concerted rebound effort today likely fed into concerns that the stock market is in the midst of a larger degree price correction than what participants have grown accustomed to seeing the past few years.
Despite starting in the red, the major averages spent the initial 90 minutes of action in a dash towards their flat lines. The S&P 500 and Nasdaq were able to make a brief appearance in the green with help from biotechnology, while the Dow spent the entire day in the red.
The iShares Nasdaq Biotechnology ETF (IBB 215.45, -6.44) appeared to have found support at its 200-day moving average in the morning, but the modest morning rebound was met with daylong selling that drove the ETF to a fresh session low. The ETF lost 2.9%, while the health care sector fell 1.1%.
Biotech notwithstanding, other momentum names that comprise a portion of the consumer discretionary sector (-1.4%) and a good part of the technology space (-1.2%) were weak once again. (AMZN 311.73, -5.38), Google (GOOG 530.60, -0.35), Netflix (NFLX 326.71, -8.02), and LinkedIn (LNKD 165.78, -4.21) lost between 1.7% and 2.5%, to name a few.
Even though the Nasdaq and S&P 500 made short-lived appearances in the green, the Dow Jones Industrial Average (-0.9%) was unable to do so as JPMorgan Chase (JPM 55.30, -2.10) and top-weighted component, Visa (V 196.63, -4.92), weighed. Visa sank 2.4% while JPMorgan Chase plunged 3.7% after missing earnings estimates on below-consensus revenue. The financial sector (-1.2%), meanwhile, ended among the laggards. The sector was kept from logging additional losses due to a 0.8% gain in Wells Fargo (WFC 48.08, +0.37), which reported above-consensus earnings.
On a separate note, shares of Herbalife (HLF 51.48, -8.36) took a dive in the final hour of action, falling 14.0% after The Financial Times reported that a criminal probe has been launched into the company's business practices.
On the fixed income side, Treasuries were little changed overnight, but began climbing during the early morning hours. The 10-yr note added eight ticks, pressuring its yield to 2.62%.
Participation was a bit above average as nearly 800 million shares changed hands at the NYSE.
Reviewing today's data:
Producer prices jumped 0.5% in March, the largest monthly increase since June, after falling 0.1% in February. The consensus expected the PPI to increase 0.1%. We would not categorize the forecasting miss as a big surprise. The consensus is having difficulty forecasting the PPI following the methodology change. Under the previous PPI methodology, price growth for finished goods was down 0.1%. That was in line with expectations. The entire increase in producer prices was the result of a bounce in prices for final demand for services. After declining 0.3% in February, these prices increased 0.7%, which was the largest monthly gain since January 2010.
The University of Michigan Consumer Sentiment Index increased to 82.6 in the preliminary reading for April from 80.0 in March. That was the strongest sentiment reading since July 2013. The consensus expected the index to increase to 81.0. Consumer sentiment typically follows changes in the equity markets, unemployment, and gasoline prices. The surveys were filled out prior to the recent weakness in the stock market, so equity prices enhanced sentiment in the preliminary reading. If the market does not rebound, we would expect the final reading to be notably lower. The Expectations Index increased to 97.1 in the preliminary reading for April from 70.0 in March. The Present Conditions Index increased to 97.1 from 95.7.
On Monday, the Retail Sales report for March will be released at 8:30 ET while February Business Inventories will be announced at 10:00 ET.

S&P 500 -1.8% YTD
Dow Jones Industrial Average -3.3% YTD
Nasdaq Composite -4.2% YTD
Russell 2000 -4.3% YTD
Week in Review: Selling Begets Selling

The stock market began the new trading week on the defensive, with the major averages posting losses across the board. The Russell 2000 (-1.5%) and Nasdaq (-1.2%) led the retreat, while the Dow Jones Industrial Average (-1.0%) and S&P 500 (-1.1%) fared a bit better. The major averages started the session in the red with little help from other global indices as markets in Asia and Europe posted losses. Similar to Friday, equity indices spent the session in a steady retreat as momentum names remained volatile. Biotechnology displayed early strength, but the industry group notched a session high during the opening hour before spending the remainder of the day in a battle with its flat line.

On Tuesday, the major averages halted their three-day losing streak with a modest bounce that sent the Nasdaq Composite higher by 0.8%. The S&P 500, meanwhile, added 0.4% with seven sectors posting gains. Equity indices exhibited some volatility during the opening hour before setting off on a climb to new session highs. The Nasdaq, which was the weakest index in recent days, stayed ahead of its peers throughout the day as momentum names recovered some of their recent losses. The Nasdaq was supported by solid gains among the likes of, Google, LinkedIn, and Netflix. and Netflix also gave a boost to the consumer discretionary sector (+1.0%), while Google and LinkedIn contributed to the outperformance of the technology space (+0.9%).

The stock market finished the Wednesday session on a sharply higher note, with the Nasdaq Composite (+1.7%) in the lead. Equity indices held solid gains into the afternoon, with a second push coming after the release of the FOMC Minutes from the March policy meeting. For the most part, the minutes reiterated several points that were already known, but market participants zeroed in on a specific portion that commented on the expected trajectory of the fed funds rate. Specifically, the minutes revealed that policymakers are not necessarily committed to hiking the fed funds rate in the first half of 2015. While that timetable could still come to fruition, it is becoming increasingly clear that the FOMC is unwilling to back itself into a corner by providing calendar-based guidance. That proved to be a relief for the stock and bond markets, while pressuring the dollar. Treasuries cut the bulk of their losses after the release of the minutes, with the benchmark 10-yr yield ending at 2.69% after hovering near 2.72% in the early afternoon. Elsewhere, the Dollar Index (-0.3%) slumped to lows, while gold futures recovered their losses, clawing back to the 1309.00/ozt level.

Thursday saw the return of aggressive selling that placed the Nasdaq (-3.1%) below its 100-day moving average, while the S&P 500 (-2.1%) finished below its 50-day average. The Dow Jones Industrial Average held up a bit better, but the price-weighted index posted a sharp loss (-1.6%) nonetheless. Even though the major averages finished Wednesday on an upbeat note, the sentiment began deteriorating during the overnight session when China reported a surprise trade surplus of $7.71 billion, which was due to disappointing import (-11.3% versus expected 2.4%) and export (-6.6% versus expected 4.0%) figures. This renewed some of the concerns about the strength of the Chinese economy, which have been present since the start of the year. Strikingly, markets in Hong Kong (+1.5%) and China (+1.4%) outperformed, but that was likely due to the announcement that Beijing would allow as much as CNY23.50 billion of cross-border equity trading. By and large, there was some indiscriminate selling taking place as the lack of follow through from the Wednesday rally piqued concerns about a larger scale correction being under way. In turn, the sharp price pullbacks started to raise worries about collateral damage among highly leveraged accounts that could be facing some margin calls. As those worries percolated, participants reduced their risk exposure with a sell-first-ask-questions-later disposition. Health care (-3.2%) spent the duration of the trading day at the bottom of the leaderboard, with continued weakness in biotechnology exacerbating the decline.