Equity markets tallied a second consecutive losing week with the S&P repelled yet again from breaking through the 2,100 mark in a convincing fashion. After posting some of the strongest performance off the February lows, energy, materials, and financials led on the downside last week. Falling oil prices and uninspiring earnings and economic reports were the primary market drivers on the week. Markets overseas declined as well with Japan, Europe, and China all losing ground.
It was a heavy economic calendar last week with several highly anticipated readings in manufacturing, employment, and inflation. Highlights included a larger than expected decline in April’s ISM Manufacturing survey (50.8) offset by a stronger than expected reading from the ISM Non-Manufacturing survey (55.7). Employment readings largely missed expectations with the April jobs report garnering the most attention. 160,000 jobs were created in April, leaving the unemployment rate at 5%, while expectations were for 205,000 jobs. Of interest were FOMC minutes released this week citing two specific indicators members are watching closely, both of which remain below pre-recession levels – prime age employment to population ratio and part-time workers for economic reasons. The benign levels of these two statistics suggest a June rate hike is even more doubtful. Regarding inflation, while last week saw commodity prices fall, the overall trend in raw materials has been up this year with commodities posting the strongest returns of any asset class, +12.5%. These price pressures were captured this week by an increase in the ISM Non-Manufacturing (Prices Paid) reading which may indicate that deflationary pressures are easing. In the manufacturing sector, respondents reported increases in 19 commodities and declines in just one. Wage increases reported this week reflected modest gains for the month of April of 2.5%. However, the overall reading on April’s jobs report did not increase the likelihood for a June rate hike from the FOMC. Earnings season was also very much in focus last week with earnings season well underway. With 87% of the S&P 500 companies having reported, current expectations (FactSet) call for a 7.1% decline overall – not a very inspiring quarterly tally.
