For the week ending April 29, 2016, the stock market is showing increasing weakness reflecting poor corporate earnings. Leading stocks (household names) came in well below expectations. In other news: the BoJ surprised the markets by failing to launch new stimulus efforts; the U.S. economy stalls in the first quarter; and, the Fed is not likely to raise rates till December. Below is a recap of the markets for each day of the week.
The markets were slightly down on Monday despite decent new home sales. Oil dropped $0.76 to $42.99. The Dow dropped -0.2 percent to 17,977; the S&P 500 dropped -0.18 percent to 2,088.
On Tuesday, the markets rose fractionally in front of tomorrow’s FOMC minutes. Oil rose $1.67 to $44.66. The Dow rose fractionally to 17,990; the S&P 500 rose 0.19 percent to 2,092.
The markets on Wednesday were up slightly following the FOMC’s decision to hold rates unchanged. Oil rose $0.67 to $45.33. The Dow rose 0.3 percent to 18,041; the S&P 500 rose 0.16 percent to 2,095.
The markets on Thursday were down on soft first-quarter GDP data of 0.5 percent. Oil rose $0.55 to $45.88. The Dow dropped -1.2 percent to 17,820; the S&P 500 dropped -0.92 percent to 2,076.
The markets Friday were down on bad earnings and soft inflation data. Oil rose $0.11 to $45.99. The Dow was down -0.3 percent to 17,773; the S&P 500 dropped -0.51 percent to 2,065.
Stocks suffer their worst week since February. The Dow had its deepest weekly decline due largely to missed earnings estimates by Apple, Google-parent Alphabet, Microsoft, Chevron, and Gilead Sciences. Also contributing to the fall was the Bank of Japan (BoJ) which failed to announce a new stimulus policy that the markets worldwide expected.
The Bank of Japan (BoJ) shocked markets by deciding against further economic stimulus. The decision caused markets worldwide to sharply retreat and the yen to sharply rise relative to the dollar. The Nikkei fell -3.5 percent and the yen rose 2.35 percent against the dollar. The BoJ maintained its pledge to increase money in circulation by 80 trillion yen ($730 billion) annually and it also left its negative interest rate of -0.1 percent unchanged. The BoJ did adopt a 300 billion yen loan program designed to assist banks hit by the earthquake in southern Japan.
First quarter GDP advances only 0.5 percent; the markets expected 0.7 percent. This is the slowest since the first quarter of 2014. Oil prices were a major contributor to the decline in GDP along with a decline in consumer spending and exports. However, economists point to a strong labor market to help improve economic growth throughout the remainder of this year as oil prices improve.
The Fed left interest rates unchanged while still suggesting only two rate hikes this year. The FOMC meeting announcement also cited the slowdown in the economy along with a drop in household spending and exports. The vote was 9 to 1 to keep rates unchanged; Kansas City’s Esther George was the lone dissenting vote, calling for a 25 basis point increase. It is likely that there will be a rate increase in June followed by a second in December.
The bottom line: the labor market remains strong, but it has yet to result in wage increases which would help raise inflation. Until wages increase and exports improve, it is not likely the Fed will hike rates.
The focus next week in the U.S. will be the on the labor market (ADP on Wednesday; employment situation on Friday), and manufacturing (PMI and ISM on Monday; productivity and costs on Wednesday). Globally, the focus will be on China as it releases key data. In addition, the focus will be on the following: UK (Manufacturing PMI, Services PMI); Eurozone (Manufacturing PMI, Producer Price Index, Services & Composite PMI, Retail Sales); Germany (Manufacturing PMI, Services & Composite); China (Manufacturing PMI, Merchandise Trade); and Japan (Manufacturing PMI, Services PMI).
Year-to-date the markets are mixed: Dow 2.0%; S&P500 1.0%; Nasdaq -4.6%.
The Markets for the past week were: DJIA down -1.3%; S&P500 down -1.3%; Nasdaq COMP down -2.7%.
Commodities (ETFs) for the past week were: Gold (GLD) up 4.89%; Silver (SLV) up 5.27%; Oil (OIH) up 2.39%; Dollar (UUP) up 5.54%; 30-year Bond (TYX) dropped 4 basis points to 2.66%.
The VIX this past week (a measure of market sentiment and volatility) rose to 15.70%. This reflects the declines in earnings and the BoJ surprise of no additional stimulus.
To see what’s on the calendar for next week, go to the Econoday calendar.
The economic calendar for next week is full:
o Monday – PMI Manufacturing Index, ISM Mfg Index, Construction Spending
o Tuesday – Motor Vehicle Sales
o Wednesday – International Trade, ADP Employment Report, Productivity and Costs, Factory Orders, ISM Non-Mfg Index, EIA Petroleum Status Report
o Thursday – Jobless Claims
o Friday – Employment Situation
If you’re trading options, it is suggested trading Put Credit spreads for next week at 2.5 standard deviations or greater. Expect the price of the SPX to fall within 1981 and 2153 (2 standard deviations).
For more information about options, see the ‘Suggested Links’ below.