Week in ReviewAfter experiencing a particularly volatile week, global equities produced a mixed reaction last Thursday. For example, although the Dow Jones Industrial Average posted a minor loss, the S&P 500 rose to register its largest weekly gain since the middle of 2013 inspired by the release of better-than-expected earnings reports by a number of its leading members. With trading volumes subdued ahead of the Good Friday holiday, the leading US essentially trended water last Thursday exemplified by the Dow Jones Industrial Average dropping by almost 16 points; the S&P500 inching upwards by 3 points and the NASDAQ climbing by slightly over 10 points.
Investor confidence was boosted last Thursday by the publication of a spate of impressive corporate earnings reports which surpassed analysts’ expectations. In particular, both the NASDAQ and the S&P500 garnered fresh support after General Electric and Morgan Stanley posted outstanding figures. Specifically, the former witnessed its shares surge by nearly 1.8% after registering an inspiring 12% increase in profits during the first quarter of 2014. The stock of Morgan Stanley also soared by almost 3% after it reported a substantial profit growth for the same period. However, not everything was completely rosy. The market upside was limited after two key technological giants, IBM and Google, both produced disappointing financial results.
So far to date, about 20% of S&P500 member companies have now released their Q1 figures. Just over 60% of them have succeeded in beating their profit forecasts by surpassing the 56% median of the previous four quarters. Economists summarized the present status of the current corporate season by stating that, although last Thursday’s posting were not totally convincing, the underlying tone is still positive. In particular, many companies are positively demonstrating that they have managed to counter the adverse impacts of an especially harsh North American winter.
Stocks were initially bolstered last Thursday after the USA posted a bout of encouraging economic indicators. The US Department of Labor issued its weekly report disclosing that the number of first claims filed for unemployment benefits by American citizens had climbed by just 2,000 during the previous week at a slower pace than forecasted. In addition, the publication of a key US business index revealed that manufacturing output of the mid-Atlantic area had surged to 16.6 during March from 9.0 in February.
What to Expect This Week
Investors will need to carefully track developments in the Ukraine/Russian crisis once again over the coming week. Hopefully, calm will return and tensions will subside. Unfortunately, if this is not the case and this situation takes a turn for the worse, then you can expect such developments to generate a serious flight to safety. Under such circumstances, riskier assets, i.e. equities will be dumped in favor of safe-haven ones, such as gold and the Yen, etc.
The present US corporate earnings season will continue in full swing with many household names publishing their financial reports for the first quarter of 2014. Some of them could have such an impact that they will not only produce dramatic movements in their own shares prices but could also be significant market movers. Analysts will be paying particular attention to the postings of firms such as the following: Netflix (Monday); McDonalds, Lockheed Martin (Tuesday); Facebook, Boeing (Wednesday); Amazon, Cola-Cola, Microsoft (Thursday) and Ford, Burger King on Friday.
The USA has a busy week ahead as it is scheduled to post a number of key economic indicators. On Tuesday, Existing Homes Sales will be presented which should disclose a minor decline during March. The Purchasing Manager’s Manufacturing Index (PMI) will be published on Wednesday together with New Home Sales. Both these indicators are predicted to reveal bounces in March by countering a particularly harsh winter. Jobless Claims and Durable Goods Orders (DGO) will be issued on Thursday. Analysts are forecasting an increase of 9K in the number of American citizens filing first claims for unemployment benefits and a decline in the DGO during March.
The Eurozone will also release key economic data over the coming days. On Wednesday, the Eurozone will announce important inflation data (PMI) for the entire region. In addition, France and Germany will produce their individual PMI readings. Later in the week, France will post a major business climate report on Thursday following by Germany disclosing its own business confidence index. Analysts will study the PMI figures with great intent in order to ascertain whether they will finally prompt the European Central Bank (ECB) into instigating new money easing policies in order to restrain the presently strong euro. The ECB has been strongly hinting at the introduction of such measures during recent weeks.