US stocks rally after weak Q1 economic growth report
‘Market feeling better Fed is not going to do too much’
NEW YORK, May 2, (AFP): Wall Street stocks finished the week on a positive note after a bruising two-day retreat following a dismal US economic growth report.
Friday’s rally limited the losses, with the Dow Jones Industrial Average finally dipping 56.08 points(0.31 percent for the week to 18,024.06 and the broad-based S&P 500 shedding 9.40 (0.44 percent) to 2,108.29.
The decline in the Nasdaq was deeper, with the tech-rich index dropping 86.69 (1.70 percent) to 5,005.39
In a week packed with major earnings, economic reports and a Federal Reserve meeting, the most impactful news was Wednesday’s stunner that the US economy grew just 0.2 percent in the first quarter.
The dismal gross domestic product figure, reflecting in part the drag from exceptionally cold winter weather and the West Coast port strike, prompted soulsearching on Wall Street.
“What a disappointment to think the US economy barely grew at all in the first quarter with the fed funds rate at the zero bound for more than six years now,” said Briefing.com analyst Patrick O’Hare.
The GDP report was followed later Wednesday by a Fed policy statement that said the slower growth was due “in part” to transitory factors and that the economy should resume expanding at a “moderate pace.”
Expects
The communique suggested the Fed still expects to begin a slow series of rate rises in the coming months, though probably not as soon as June.
Scott Wren, senior global equity strategist at Wells Fargo Investment Institute, said the market “had a little tough time processing” the GDP data. But after two days, investors shrugged off their fears.
“The market is feeling better that the Fed’s not going to do too much here and that the economy is going to move forward at a modest pace,” he said.
Other data last week was mixed. The Conference Board’s index of consumer confidence fell sharply to 95.2 in April from 101.4 in March.
Other reports showed a modest rise in consumer spending in March and sluggish growth in manufacturing activity in April. US auto sales picked up in April.
Companies have generally bested what were very low expectations ahead of first-quarter earnings season.
Of the 347 companies in the S&P 500 that have reported, 238 have reported earnings ahead of expectations, while 76 have missed, with the rest coming in at levels forecast by analysts. Only 45 percent have beaten expectations for revenues, according to S&P Capital IQ.
Standouts this week included drug giant Merck (+3.9 percent this week), which raised its full-year forecast after adjusted earnings per share in the first quarter came in at 85 cents, 11 cents above forecasts.
The market also a cheered a sunny report from online travel site Expedia, which reported a 19 percent increase in gross bookings and a 14 percent gain in revenue, lifting the stock 7.9 percent Friday.
But other technology stocks suffered double-digit declines following disappointing results. This group included LinkedIn, Twitter, Yelp and Stratasys, a 3D printing company.
In other corporate news, generic drugs company Mylan finished the week 2.9 percent lower after it balked at an unsolicited takeover campaign from rival Teva even as its own proposed acquisition of Perrigo met with repeat rejection. Perrigo and Teva both fell 3.4 percent. Applied Materials agreed with Tokyo Electric to abandon their nearly $10 billion merger agreement, citing opposition from the US Justice Department on antitrust grounds.
Starwood Hotels & Resorts Worldwide announced it hired investment bank Lazard to undertake a strategic review of the company to enhance shareholder value. The move sparked speculation that Starwood, which owns the Westin hotel chain, could be acquired.
Next week’s calendar includes a handful of major earnings reports, including from Disney and 21st Century Fox. The schedule also contains some important economic releases, including the April jobs report from the US Department of Labor.
Meanwhile, Tokyo investors will be looking to a string of US data next week when markets re-open after a three-day holiday.
Japanese financial markets are closed from Monday to Wednesday for national holidays known as Golden Week, with normal trading to resume Thursday. Markets will be digesting indicators including the ISM non-manufacturing index and jobs data at the end of the week.
On Thursday, Japanese earnings season resumes with Nintendo and Toyota among the companies reporting, but analysts warn that a recent rally could be set to cool off.
“In the immediate term, caution is needed due to the possibility that foreign investors will turn to profit-taking after buying Japanese shares aggressively,” Daiwa Securities said in a note to clients.
On Friday, Tokyo’s benchmark index ended flat, as a weaker yen helped recover early losses driven by investors’ disappointment over the Bank of Japan holding off fresh stimulus, and after a fall on Wall Street.
The Nikkei 225 index at the Tokyo Stock Exchange, which tumbled 2.69 percent on Thursday, inched up 0.06 percent, or 11.62 points, to close at 19,531.63.
It lost 2.44 percent over the week, which was shortened to four sessions by a public holiday.
The broader Topix index of all firstsection shares fell 0.45 percent, or 7.18 points, to 1,585.61. It lost 2.05 percent this week.
Information technology giant Fujitsu plunged 17.93 percent to 651.0 yen after warning late Thursday that it would like- ly report a sharp drop in profit this fiscal year.
“There was concern about the recent strength in stock prices,” said Akio Yoshino, chief economist in Tokyo at Amundi Japan.
“A lot of company forecasts aren’t as strong as expected, so there’s profit taking going on, too. Also, a lot of investors had hopes for additional easing from the BoJ,” he told Bloomberg News.
After a policy board meeting Thursday, the central bank left unchanged its vast stimulus programme despite a downturn in the world’s number three economy.
Economists still believe the BoJ will ramp up its easing programme later this year to bring Japan closer to its 2.0 percent inflation target, which is a cornerstone of Prime Minister Shinzo Abe’s drive to conquer stagnant prices and revive the economy.
Data on Friday showed inflation picked up in March, but it was still well off the BoJ’s target, while household spending tumbled in a worrying sign for consumer confidence.
Sony fell 0.44 percent to 3,628.5 yen after reporting a $1.1 billion annual loss on Thursday. But the struggling electronics giant said it expects to swing back to profitability in the current fiscal year.
Mobile carrier SoftBank was down 0.33 percent at 7,480.0 yen, while Toyota slipped 0.51 percent to 8,315.0 yen.
Market heavyweight Fast Retailing, operator of the Uniqlo clothing chain, rose 0.62 percent to 47,590.0 yen.
In Tokyo forex trade, the dollar rose to 119.80 yen, from 119.38 yen in New York.