TheChek News Flow

Closing Market Summary: Downturns in Oil and Financials Pressure Indices from Highs

The stock market ended the Thursday affair on a lower note as the major averages pulled back after a recent run higher. Today's downturn can be attributed to retreating oil prices, mixed earnings results, and the underperformance of the heavily-weighed financial sector (-1.0%). The Dow Jones Industrial Average (-0.6%) finished its day behind both the S&P 500 (-0.5%) and the Nasdaq Composite (-0.1%).

Equity indices began the day under pressure as an overnight retreat in oil weighed. The dip in crude preceded the latest policy statement from the European Central Bank, which left the central bank's interest rate corridor unchanged. Additionally, ECB President Draghi struck a dovish tone in his remarks as he reiterated that rates will remain at their present levels or lower for an extended period of time. Furthermore, Mr. Draghi said financing conditions in the eurozone improved in March, but the central bank head believes that inflation could turn negative in the coming months.

On the home front, investors turned their attention towards the slew of mixed quarterly earnings reports released since yesterday's close. However, despite some better-than-expected readings the major averages were unable to maintain their recent momentum. The benchmark index was unable to reach yesterday's high (2111.05) or maintain its position near yesterday's low (2096.32).

By the end of the session, nine sectors traded in negative territory with countercyclical telecom services (-2.7%), utilities (-2.2%), and consumer staples (-1.7%) outpacing the losses in the broader market. Meanwhile, financials (-1.0%), and energy (-0.5%) registered slimmer losses. On the flip side, the heavyweight health care space (+0.6%) ended its day as the lone advancer.

In the lightly-weighted telecom services sector (-2.7%), large cap component Verizon (VZ 50.03, -1.72) weighed after hinting that its second quarter earnings may be pressured due to timing of certain cost reductions in relation to the CWA and IBEW strike.

Insurance names underperformed in the financial sector (-1.0%) as the sub-group moved lower in sympathy with Travelers (TRV 108.79, -7.01). The stock fell 6.1% after missing bottom-line estimates for the first quarter. The broader sector trimmed its April advance to 3.5%. On the flipside, Bank of New York Mellon (BK 40.70, +0.98) gained 2.5% after reporting bottom-line results above analysts' estimates.

In the industrial space (-0.3%), relative weakness from airlines outweighed an uptick in rail names. The airline sub-group traded lower in sympathy with United Continental (UAL 52.76, -5.84), which tumbled 10.0% after lowering passenger revenue guidance for the second quarter. Separately, Union Pacific (UNP 87.32, +3.47) rallied 4.1% on mixed earnings, with investors focusing on a bottom-line beat. The Dow Jones Transportation Average (-1.2%) trimmed its weekly gain to 0.4%.

The biotechnology sub-group outperformed in the health care space (+0.6%), thanks to Biogen (BIIB 279.60, +13.71). The company reported a bottom-line beat on in-line revenue ahead of today's opening bell. Biogen also reported that revenue grew 6.7% year-over-year thanks in part to a 15.0% increase in revenue from Tecfidera.

The influential technology sector (-0.1%) ended near its flat line as Apple (AAPL 105.97, -1.16) underperformed following Qualcomm's (QCOM 51.67, -0.42) mixed guidance for the June quarter. The below-consensus estimate is believed to be linked to weakness in smartphone components. Meanwhile, Microsoft (MSFT 55.78, +0.19) and Alphabet (GOOG 759.14, +6.47) outperformed ahead of this evening's quarterly earnings reports.

The U.S. Dollar Index (94.64, +0.15) ended its day above its flat line as the greenback recovered from sharp losses against the euro. The euro/dollar pair jumped to 1.1381 immediately following remarks from ECB President Mario Draghi. However, this move would prove to be short-lived as the currency pair retraced its way down to negative territory at 1.1288 (-0.1%). Separately, the dollar lost 0.4% against the yen (109.45).

Despite the larger move in the equities market, Treasuries managed to remain in a narrow range with the yield on the 10-yr note fluctuating between 1.86% and 1.88%. The yield on the benchmark note settled at 1.86% (+2 bps).

Today's participation was above the recent average with more than 987 million shares changing hands at the NYSE floor.

Today's economic data included weekly initial claims, the Philadelphia Fed Survey for April, FHFA Housing Price Index for February, and March Leading Indicators: 

• Initial claims were 247,000 for the week ending April 16 (consensus 263,000), a decrease of 6,000 from the prior week's unrevised level.
  • The latest initial claims reading, which was not influenced by special factors, is the lowest level of initial claims since November 24, 1973 and marked the 59th straight week claims have been below 300,000, which is the longest streak since 1973!
  • The claims data is a clear reflection of a strong labor market -- or so it would seem. The other important piece to corroborate that statement -- average hourly earnings growth -- has yet to follow convincing suit.
  • With the latest reading, the four-week moving average for initial claims fell to 260,500 from 265,000.
• Continuing claims for the week ending April 9 dropped by 39,000 to 2.137 million, which is the lowest level since November 4, 2000.
  • That lowered the four-week moving average to 2.169 million, which is the lowest level since November 11, 2000
• The Philadelphia Fed Index was a big disappointment. After turning positive in March (+12.4) following six straight negative readings, it dropped back into negative territory in April (-1.6; consensus +9.9).
  • There were several key elements making this a particularly disappointing report: (1) the new orders index decreased from 15.7 to zero (2) the shipments index fell from 22.1 to -10.8 (3) the employment index decreased 17 points and registered its fourth straight negative reading (-18.5) and (4) this is a second quarter report showing a relapse in growth of the region's manufacturing sector.
  • The latter point notwithstanding, the diffusion index for future general activity increased from 28.8 to 42.2.
• The FHFA Housing Price Index for February rose 0.4% month-over-month after increasing a revised 0.4% (from 0.5%) in January.
• The Leading Economic Index increased 0.2% in March (consensus+ 0.4%). The added disappointment in the report is that February was revised lower to show a 0.1% decline after an originally reported 0.1% increase.
  • The biggest contributors to the March increase were stock prices (0.24 percentage points) and the interest rate spread (0.17 percentage points).
  • They were offset to a certain degree by building permits, which subtracted 0.25 percentage points.
  • The building permits impact effectively accounted for much of the difference between the consensus estimate and the actual number. The building permits data for March was released earlier in the week.
  • The other two components estimated by the Conference Board were manufacturers' new orders and nondefense capital goods orders excluding aircraft.
  • Neither was accorded much strength as the estimated contributions were 0.01 and 0.03 percentage points, respectively.
  • In the six-month period ending March 2016, the leading economic index increased 0.7% versus 1.5% in the previous six months.
  • Separately, the Coincident Economic Index remained unchanged in March while the Lagging Economic Index increased 0.4%.

There is no economic data of note scheduled for release tomorrow. 

• Dow Jones +3.2% YTD
• S&P 500 +2.3% YTD
• Russell 2000 +0.0% YTD 
• Nasdaq Composite -1.2% YTD