After a mostly positive week, investors went into Friday seemingly determined to take some money off the table over a weekend when the Ukrainian conflict seemed to promise fresh sanctions against Russia. The small caps of the Russell 2000 took the brunt of the selling with a 1.9% losson Friday alone, while the S&P 500 was left essentially flat.
Last Week’s Headlines
- New home sales plummeted 14.5% in March; according to the Commerce Department, that’s the lowest level since July and more than 13% below March 2013. It’s the first time since September 2011 that year-over-year sales have dropped. The figures raised questions about how much of the recent slump was attributable to winter weather. However, the $290,000 median sales price was 12.6% higher than a year earlier.
- Sales of existing homes also slipped in March, but by only 0.2%, according to the National Association of Realtors®. That left them 7.5% below March 2013. Tight inventories continued to help push prices up; the NAR said the $198,500 median sales price was nearly 8% higher than in March 2013.
- Orders for big-ticket items such as aircraft and electronics surged 2.6% in March, following a 2.1% increase in February. The Commerce Department said the volatile transportation sector was up 4%, while non-transportation items also rose 2%, led by a 5.7% jump in computers and electronics and a nearly 8% increase in orders for communications equipment. Business orders for capital goods rose more than 7%.
- In the wake of an appeals court ruling that struck down so-called “net neutrality” regulations, the Federal Communications Commission proposed new rules that would allow broadband Internet service providers to charge content providers higher fees for speedier Internet connections as long as they did so in a “commercially reasonable” manner. The rules will be subject to public comment before going before the full commission for a vote, possibly later in the year.
Eye on the Week Ahead
Markets will have no shortage of potential influences next week. In addition to tension over Ukraine, the Federal Reserve will meet, though little change in its current tapering is expected. April unemployment figures and the first estimate of Q1 gross domestic product will be released, as will consumer spending and manufacturing data.
Despite the holiday-shortened trading week, domestic equities managed to recapture virtually all of the ground lost the week before–and more important, the gains were across the board. Even the tech and biotech sectors that have suffered recently showed signs of stabilization, while the S&P 500 managed to return to positive territory for the year.
Last Week’s Headlines
- Springtime for retail: Shoppers emerged from hibernation and returned to stores again in March, according to the Commerce Department. Retail sales rose 1.1% from February, and were 3.8% higher than in March 2013. Auto sales were up 3.4% for the month and up 9.5% from March 2013. The figures were hailed as confirmation that frigid winter weather was a major factor in previous months’ sluggish sales.
- China’s economy grew 7.4% over the last year, according to the country’s National Bureau of Statistics. That represents a slowing from the previous quarter’s annualized 7.7% rate, and is slightly below the targeted 7.5% growth for all of 2014. It also represents the nation’s slowest quarterly growth in 18 months. Chinese officials said weaker winter demand from the United States for exports and a sluggish housing market were major factors in the decline.
- Consumer prices rose 0.2% in March, helping to cut the inflation rate for the last 12 months slightly to 1.5%. The Bureau of Labor Statistics said the biggest increases were seen in the costs of food and shelter. Grocery prices overall were up .5% for the month and 1.7% for the year, while restaurant prices are up 2.3% since March 2013. The 2.7% increase in the cost of shelter since last March in part reflects rising home prices. Meanwhile, energy costs declined 0.1% in March, led by a 1.7% drop in gas prices.
- Housing starts improved in March, rising 2.8%, but were nevertheless almost 6% lower than March 2013. The Commerce Department said building permits–an indicator of future activity–fell 2.4% for the month but were more than 11% higher than the previous March.
- U.S. industrial production grew 0.7% in March, driven largely by mining and the utilities sector. Also, the Federal Reserve revised February’s 0.7% gain upward to 1.2%; it was the highest monthly growth rate in almost four years. The increases represent an annualized 4.4% growth rate in Q1. Meanwhile, the Fed’s April Empire State manufacturing survey slipped 4 points to 1.3, but the Philly Fed’s survey for the month rose from 9.0 to 16.6, its highest reading since last September and the second consecutive month of gains.
- The nonpartisan Congressional Budget Office said the federal government’s cost of expanding health-care coverage under the Affordable Care Act (primarily from providing insurance premium subsidies) will be $36 billion in 2014–roughly 12% less than the amount predicted in February–and almost 7% ($100 billion) less than the $1,487 billion previously estimated for the next 10 years.
- The weekly earnings of full-time American workers during the first quarter were 3% higher than a year earlier; according to the Bureau of Labor Statistics, that’s the fastest annual growth since 2008 and was more than double the 1.4% increase in the Consumer Price Index over the last 12 months. The report said the increase put inflation-adjusted median weekly earnings at $796, their highest level since Q2 2012.
Eye on the Week Ahead
Data on home sales and manufacturing could suggest whether a spring rebound is in store. Many of the major Nasdaq tech companies will release Q1 earnings, which could influence whether last week’s rally shows some ongoing strength.
The wave of tech and biotech selling that has taken the Nasdaq down more than 8% in just over a month spread to the large caps of the Dow and S&P 500 last week. However, the S&P is still only 4% away from the record close it hit less than two weeks ago. Meanwhile, the profit-taking in stocks sent the benchmark 10-year Treasury yield down as demand pushed prices up.
Last Weeks’s Headlines
- Minutes of the Federal Reserve’s most recent monetary policy meeting showed most committee members favor expanding the amount of detailed guidance about interest rates after rates begin to rise. The minutes also showed a general consensus that an increase isn’t likely for some time.
- Exports from China were down 6.6% in March from a year earlier and imports were down more than 11% over the same time, raising concerns about the implications for the global economy. The customs data followed reports that the World Bank’s forecast for Chinese growth this year had been cut slightly to 7.6%, while Chinese Premier Li Keqiang said the economy might not reach its official targeted 7.5% growth rate.
- The International Monetary Fund’s semiannual report on its world economic outlook said global recovery is becoming stronger and broader. However, continuing problems in some emerging markets, notably Brazil and Russia, caused the IMF to cut its global growth rate forecast slightly to 3.6% for 2014 and 3.9% for next year. The 2.8% growth rate the IMF projects for the United States this year was unchanged from its January forecast.
- Wholesale prices jumped 0.5% in March; the Bureau of Labor Statistics said the increase could be attributed largely to the cost of services, which rose 0.7%.
Eye on the Week Ahead
As Q1 earnings season gets under way, forward guidance is likely to be just as significant as assessments of how earnings were affected by the weather; as economic data begin to reflect spring, a general failure to show improvement from winter’s numbers could be badly received by investors. Also, Wednesday will see the release of China’s Q1 GDP figures, which will be closely watched in light of last week’s signs of slowing trade.
For the second straight week, the large caps of the Dow and S&P 500 fared better than the Nasdaq, which continued to be hurt by selling in the technology and biotech sectors that played such a big part in its 2013 gains. The S&P hit a new all-time closing high on Wednesday, while the Dow came close to matching the record close seen on New Year’s Eve 2013. Meanwhile, a jobs report that seemed to support the Fed’s current gradual tapering left bond markets relatively stable.
Last Week’s Headlines
- The U.S. economy created 192,000 new jobs in March, and the Bureau of Labor Statistics revised its figures for January and February upward. However, because more people sought work, the unemployment rate remained at 6.7%.
- There was encouraging news about the U.S. manufacturing sector. After two months of declines, the Commerce Department said new orders at U.S. factories were up 1.6% in February, led by a 7% increase in transportation equipment, and shipments also rebounded. Manufacturing data from the Institute for Supply Management® also showed accelerating growth in March; the half-percent increase to 53.7% was the 10th straight month of growth. And in the services sector, the ISM’s March survey also showed acceleration, with a 1.5-point increase to 53.1%.
- Despite a 0.5% inflation rate–the lowest in more than four years–the European Central Bank left its key interest rate unchanged at 0.25%. President Mario Draghi said the ECB discussed adopting both conventional and extraordinary quantitative easing measures, including a negative deposit rate and asset purchases, to prevent the threat of deflation. Such measures could weaken the euro, potentially increasing European exports. However, the group decided to postpone action to see whether the inflation rate rises to a more acceptable level after the end of a warm winter that has cut heating and food prices there.
- According to the Commerce Department, the U.S. trade deficit rose 7.6% in February to its highest level in five months as a 0.4% increase in imports, particularly oil, wasn’t enough to overcome a 1.1% decline in American exports.
- Despite the winter weather, a 1.2% increase in money spent on commercial buildings helped push overall construction spending up 0.1% in February, according to the Commerce Department.
- The Department of Justice confirmed that it is investigating the practice of high-frequency trading to see whether it has been used to violate insider trading laws. The SEC and Commodity Futures Trading Commission also are investigating HFT.
- Past performance was no indicator of current results: Despite the troubled rollout of www.healthcare.gov, the White House said that by the March 31 deadline, more than 7 million individuals–the initial goal–had signed up (or were in the process of doing so) for health insurance coverage under the Affordable Care Act.
Eye on the Week Ahead
Investors will watch to see whether the tech selling continues and whether it spreads to the large-cap indices. However, they’ll have little economic data for guidance, though minutes of the recent Federal Open Market Committee meeting could show the extent of any division among members about the future of interest rates.