Closing Market Summary: Earnings Fail to Nudge the Market HigherThe 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 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 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 (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 (consensus +0.4%), Personal Spending (consensus +0.4%), and PCE Prices (consensus 0.0%) for March, the Chicago PMI for April (consensus 58.0), and March Pending Home Sales (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