The Week In Review

5/26-5/29/16

 The stock market ended a downbeat week on a lower note as the major averages surrendered to month-end selling pressure. Today's trade featured a slew of economic data, a downturn in oil, continued strength in the yen, and the underperformance of the heavily-weighted health care (-1.5%), technology (-0.9%), and financial (-0.7%) sectors. The Nasdaq Composite lost 0.6%, extending its weekly loss to 2.7% while the S&P 500 fell 0.5%, losing 1.3% for the week.

Today's session opened under selling pressure as weak international and domestic economic data dampened investor sentiment. On the home front, March PCE Price Index (+0.1%; Briefing.com consensus +0.1%) was largely in-line while Chicago Purchasing Managers Index (50.4; Briefing.com consensus 53.3) and the University of Michigan Consumer Sentiment Survey for April (89.0; Briefing.com consensus 90.0) each came in below consensus. Additionally, oil slipped out of the gate as WTI crude fell from the $46.76/bbl (+1.6%) price level.

The major averages briefly rebounded following comments from Dallas Fed President Robert Kaplan. The non-FOMC voter stated that a potential "Brexit" would be need to be factored into the Fed's rate decision when it meets next on June 14 and 15. This short-term rally faded as heavily-weighted health care (-1.5%), technology (-0.9%), and financials (-0.7%) weighed.

The major indices would lift from their lows in the final hour as utilities (+0.6%), consumer discretionary (+0.5%), telecom services (UNCH), and energy (-0.1%) tried for gains. Conversely, health care (-1.5%), technology (-0.9%), and financials (-0.7%) rounded out the leaderboard.

Biotechnology weighed on the health care space (-1.5%) as the sub-group moved lower in sympathy with Gilead Sciences (GILD 88.21, -8.79). The company declined 9.1% after missing top- and bottom-line estimates for the first quarter. The iShares Nasdaq Biotechnology ETF (IBB 267.95, -7.32) declined by 2.7%, extending its weekly loss to 7.1%. This compares to a loss of 3.0% in the broader sector over that time.

In the technology space (-0.9%), data storage names displayed relative weakness after Seagate Technology (STX 21.77, -5.13) missed bottom-line estimates for the quarter and lowered its third quarter revenue guidance below-consensus. Elsewhere, Skyworks (SWKS 66.82, -4.96) lagged other high-beta chipmakers after lowering guidance for its third quarter below analysts' estimates. Separately, Apple (AAPL 93.75, -1.08) extended its post-earnings losing streak, as it declined 1.1%. Since reporting on April 26, the stock has declined 10.8%.

Travel names demonstrated relative strength in the consumer discretionary sector (+0.5%). The sub-group moved higher following better than expected quarterly results from Expedia (EXPE 115.77, +8.78). Meanwhile, Amazon (AMZN 659.59, +57.59) ended its day on top of the Nasdaq 100 (-0.5%) after beating analysts' estimates for the first quarter. Conversely, retail names underperformed, evidenced by the 1.3% loss in the SPDR S&P Retail ETF (XRT 44.20, -0.56).

On the commodities front, WTI crude ended its day lower by 0.2% to $45.96/bbl. This represents a gain of 5.0% over the last week, and 20.0% in April. This compares to respective gains of 0.4% and 8.6% in the broader energy sector (-0.1%) over those periods.

The U.S. Dollar Index (93.04, -0.72) extended its recent losing streak as the yen and the euro gained against the greenback. The move higher in the yen followed yesterday's decision by the Bank of Japan to maintain its monetary policy stance. Investors had been looking for signs of monetary policy intervention given the recent run in the yen. On that note, the dollar/yen pair declined 1.6% to 106.40.

The Treasury complex climbed off its low throughout the day as the yield on the 10-yr note dropped from 1.87% (+5 bps) to 1.82% (UNCH). The 10-yr note ended at 1.83% (+1 bps).

Today's participation was above the recent average as more than one billion shares changed hands on the NYSE floor.

Today's economic data included Core PCE Prices for March, Personal Income for March, Personal Spending for March, the Q1 Employment Cost Index, Chicago PMI for April, and the final reading of the University of Michigan Consumer Sentiment Index for April:

The Personal Income and Spending report for March showed a 0.4% increase in income (Briefing.com consensus +0.3%) and a 0.1% increase in spending (Briefing.com consensus +0.2%).

The income and spending data were embedded in the advance estimate for first quarter GDP released yesterday, so that left the PCE Price Index as the focal point of today's report -- and that metric was supportive of the Fed's patient stance on raising the fed funds rate.

The PCE Price Index, which is the Fed's preferred inflation gauge, was up 0.1% month-over-month. That resulted in a 0.8% year-over-year increase, which was down from 1.0% in February and well below the Fed's 2.0% longer-run objective.

Core PCE, which excludes food and energy, was up 0.1%, as expected, in March. That left the year-over-year change at 1.6%, down from 1.7% in February.

The first quarter Employment Cost Index increased 0.6%, which was in-line with expectations, and followed in the wake of a 0.5% increase for the fourth quarter.

The Chicago Purchasing Managers Index (PMI) fell to 50.4 in April from 53.6 in March. The April reading was below the Briefing.com consensus estimate of 53.3 and disappointing primarily because the downturn was driven by a drop in the New Orders Index, which isn't comforting knowing there was also reportedly a big drop in the Order Backlogs Index.

The added disappointment in this report is that it is a second quarter reading. There is a lot of hope tied up in the idea that the U.S. economy is poised to rebound smartly in the second quarter after growing at a seasonally adjusted annual rate of just 0.5% in the first quarter. While the Chicago PMI is a survey, as opposed to hard data, it nonetheless sets a bad tone.

The dividing line between expansion and contraction is 50.0, so manufacturing activity in the Chicago region, which has important ties to the auto industry, was barely expanding in April. The soft start to the second quarter has reportedly made respondents more anxious about the impact of another rate hike in the next six months than they were in March.

The final reading for the University of Michigan Consumer Sentiment Survey for April checked in at 89.0 (Briefing.com consensus 90.0). That was below the preliminary reading of 89.7 and the final reading of 91.0 for March.

Monday's economic data will be limited to the April ISM Index (Briefing.com consensus 51.4) and Construction Spending for March (Briefing.com consensus -0.5%), which will each cross the wires at 10:00 ET.

Dow Jones +2.0% YTD

S&P 500 +1.1% YTD

Russell 2000 -0.4% YTD

Nasdaq Composite -4.6% YTD

Week in Review: Central Banks Hold, Stocks Fold

The stock market ended April on a lower note with the Nasdaq Composite leading the decline. The tech-heavy index lost 2.7% for the week, ending April lower by 1.9%. The S&P 500 fell 1.3%, ending April with a slight gain of 0.3%.

The last week of April was busy on all fronts. Investors received a heavy batch of economic data and earnings, but it was two central bank meetings that stole the attention. On Wednesday, the Federal Open Market Committee held the fed funds rate unchanged between 0.25% and 0.50%. Going into the meeting, the market believed that the statement could begin setting the stage for a rate hike in June, but the FOMC Statement was dovish and contained no hints of an impending rate hike. Stocks wobbled immediately after the announcement, but rallied into the afternoon.

The Bank of Japan followed the Fed, releasing its policy statement late Wednesday evening. The central bank made no changes to its interest rate, but did announce a JPY300 billion, 0%, lending facility for companies affected by the Kumamoto earthquake. The yen surged on the news, dropping the dollar/yen pair into the neighborhood of this year's low near 108.00. The sharp rally in the yen proved that the market expected the Bank of Japan to step up its easing efforts, but the central bank did not deliver. The yen spent Thursday near its overnight high and the risk-off sentiment filtered through to the equity market while the yen continued its climb into Friday.

Stocks stumbled on Thursday afternoon with Apple (AAPL) receiving a lot of attention after Carl Icahn revealed that he closed his position in the stock. Earlier in the week, the company reported disappointing results for the second quarter, showing a 13.0% year-over-year decline in revenue. In other tech earnings, Alphabet (GOOGL) and Microsoft (MSFT) missed bottom-line estimates while Facebook (FB) beat expectations.

The technology sector was the weakest performer during the last week of April (-3.6%), which put the largest sector by weight at the bottom of the monthly leaderboard (-5.5%). On the flip side, energy and materials outperformed, posting respective April gains of 8.7% and 4.9%.