The last week of April gave us two high profile central bank meetings, a fair number of economic reports, and a continuance of first quarter earnings season. Overall, equity markets softened in the final week of the month while government bonds rallied. U.S. equities fell 1%-2% while U.S. Treasury bond yields fell across the curve. Of interest is that smaller stocks have led the market off its February lows, demonstrating more breadth to this recovery than what was experienced last fall. Since February lows, large caps have rallied 15% while small caps have established a new technical bull market, up 20%.
The Fed largely met expectations last week by standing pat on interest rates, keeping the Fed Funds rate at 0.25%-0.50% with an overall dovish tone to their post meeting narrative. The BOJ meanwhile opted to follow suit, offering no additional monetary stimulus measures, while the market had pinned some expectations on more accommodation in Japan. Japanese equity markets sold off significantly on the ‘inaction’ while the Yen strengthened over 3%.
Economic news on the week essentially confirmed the lackluster growth environment still facing most economies globally. First quarter annualized U.S. private sector wages climbed 2% while GDP grew only 0.5%. Persistent weak wage gains are a likely culprit of continued lackluster consumer spending which increased 0.1% in March – essentially flat after accounting for inflation for a second time in the past three months. This week’s durable goods orders also reflected spending restraint, falling -2.4% (ex-aircraft) in March. Oil surged to a 5 month high this week, closing near $46, up 68% from the 13 year low posted in February.
Last week also marked the peak of first quarter earnings season. More than 800 companies reported, bringing the total to 1,100. Revenue and earnings beat rates are continuing to come in strong, at 55.5% and 64.2% respectively. Disappointing earnings results from bellwether technology stocks (Apple, Google, Microsoft) last week sent tech shares to their worst week of performance since February. Also of note is that company forward guidance has been ‘less bad’ this quarter. Over the past five years, there has only been one quarter where more companies raised guidance than lowered guidance. This season, only two more companies have lowered guidance than have raised – essentially flat and perhaps an encouraging sign.
