With the markets closed on Friday due to the Easter holiday, the US stock market ended on a mixed note as the Dow Jones Industrial Average fell 0.1%, while the S&P 500 added 0.1% with seven sectors posting gains.
Market indices faced an uphill climb after opening on Thursday but fell after disappointing quarterly results from Google and IBM weighed on the early trader sentiment. Google reported earnings $0.15 below market expectations on revenue of $15.42 billion (expected $15.52 billion), while IBM revealed in-line earnings on revenue that was roughly $500 million below expectations.
The results from the two firms pressured the technology sector with it falling 0.3% initially, which was down as much as 1.0% later Thursday morning. The sector was able to bounce back from the bulk of its losses thanks to strength among chipmakers and other high-beta components.
Even though Google and IBM pressured the market early on, equity indices were able to rebound with help from several other major listings that reported above-consensus results. General Electric, Goldman Sachs and Morgan Stanley all beat their estimates. Although the NASDAQ and S&P 500 posted modest gains, the Dow Jones dropped slightly on Thursday by a factor of 0.1% as it was unable to catch up to its peers as losses in several large components like IBM and American Express lowered the price-weighted index.
Additionally, there were reports on Thursday coming out from Geneva indicating representatives from the European Union (EU), United States, Ukraine, and Russia have reached an agreement on steps aimed at de-escalating the crisis in Ukraine. The agreement was announced by Russia's Foreign Minister Sergei Lavrov, who also said Ukraine needs to be decentralized and obtain more regional powers. Trading volume was above average thanks to a boost in activity resulting from options expiration. As a result more than 800 million shares changed hands at the New York Stock Exchange.
S&P 500 (April 14th – 18th, 2014)
In the US, economic data announced on Friday included that the initial claims level increased to 304,000 for the week ending April 12th from an upwardly revised 302,000 for the week ending April 5th. The market analyst consensus expected the initial claims level to increase to 312,000.
The US Department of Labor (DOL) stated that there were no special factors impacting the claims data. However, we remain skeptical of that. Over the past few years, the DOL has had extreme difficulties managing the seasonal adjustment factors around the Easter holiday. With Easter falling on a later date this year, we suspect that the claims are underreporting actual layoff levels. We expect some volatility in the next few weeks before the initial claims level settles back in the 320,000 – 330,000 range by the beginning of May.
The Philadelphia Fed's Business Outlook increased to 16.6 in April from 9.0 in March. The Briefing.com consensus expected the index to fall to 8.6. There was a general strengthening across the board. Shipments spiked to 22.7 in April from 5.7 in March. Most of the gain was the result of a significant strengthening in new orders demand, 14.8 from 5.7. The gains in shipments, however, may not be sustainable. Unfilled orders softened as the related index fell to 2.0 in April from 2.6 in March. Without a steady supply of backlogs, weaker new orders will pull down shipments growth. The employment index increased to 6.9 in April from 1.7 in March.
On Thursday, US financial services firm Goldman Sachs announced its 1st quarter earnings with the firm’s profits falling 11%. Although this wasn’t the most positive of results the organization still beat analyst estimates so the earnings were received slightly more positive than one would expect.
Goldman Sachs reported an 11% drop in first-quarter profit on Thursday as client activity remained constrained and fixed-income revenue shrank. The US bank said its net income fell to $1.95 billion, or $4.02 per share, in the first three months of the year from $2.19 billion, or $4.29 per share, in the same period of 2013.
These earnings beat the average analyst estimate of $3.45 per share and the bank's shares rose 1.7% in premarket trading on Thursday. Goldman's rivals also reported a drop in revenue from fixed-income trading in the quarter but Goldman has more at stake than others because it has a less diverse business mix.
Goldman's revenue from fixed income, currency and commodities (FICC) trading fell 11% from a year earlier to $2.85 billion in the quarter ended March 31st. The Investment Banking and Investment Management arms of the business generated solid results, while market sentiment shifted throughout the quarter, constraining client activity in various parts of the business.
Goldman makes most of its money from trading and investing in capital markets. This sets it apart from JPMorgan Chase, Citigroup, and Bank of America, which have big consumer lending businesses, and Morgan Stanley, which has a large wealth-management arm.
Earlier on Thursday, Morgan Stanley—Goldman's closest rival—reported a 55% jump in first-quarter earnings as higher revenue from the bank's institutional securities business augmented another strong quarter from wealth management. Morgan Stanley said its FICC revenue increased 13% in the first quarter.
Goldman Sachs (April 14th – 18th, 2014)
In other areas, Goldman's results were mixed but reflected broader Wall Street trends. Debt underwriting revenue fell 5% to $660 million due to a decline in refinancing activity, which had driven earnings for the past few years. However, equity underwriting revenue rose 12% to $437 million as a slew of companies filed for initial public offerings.
Revenue in the company's investing and lending business fell 26% to $1.53 billion, reflecting the decline in fixed-income activity. Goldman Sachs' shares, which have fallen more than 20% since the start of the year, were trading at $159.76 before the opening bell after closing at $157.22 on Wednesday.
Over the course of the trading week, Goldman Sach’s stock reached a weekly high of $159.91 on Thursday and weekly lows of $153.23 on Tuesday.
Equities/indices: the S&P 500 progressively increased throughout the trading week. Those that traded binary options based on the value of the S&P 500 first thing on Thursday morning through a binary call option would have been “in the money” by late afternoon of the same trading day.
EUR/USD: the EUR/USD currency pair experienced a range of ups and downs as both currencies were impacted by economic announcements in the US. Those that traded binary options based on the value of this currency pair midday on Wednesday through a binary put option would have experienced successful results by the end of the same trading day.
Goldman Sachs: after announcing its disappointing 1st quarter profits, US financial firm Goldman Sachs experienced softening results to end the trading week after rising slightly on Wednesday. Those that traded binary options based on the price of this stock midday on Wednesday through a binary call option would have been “in the money” by late afternoon of the same trading day.
Next week, the only economic news that will be announced is US new home sales and jobless claims. New home sales may have an impact on US construction stocks as if there is an increase in the sale of new homes in the US, this is likely to act as a binary trading signal and spur advances in the value of those stocks. If jobless claims rise, this could signal a decline in the US economy and possibly lead to a fall in US indices. This could also have a subsequent effect on currency pairs that include a US dollar component. Additionally, all eyes in the markets will be on the unfolding situation in Ukraine. Any changes in this situation will likely cause a rise or fall in the value of commodities, particularly oil. Finally, earnings season will continue next week with technology firm Apple set to release their earnings on April 23rd.
It was another exciting week in the markets globally. A range of economic and corporate announcements continue to cause a range of motion with all major asset categories. In the week ahead, there is no doubt that similar factors will influence the markets and cause further ups and downs. Hopefully, for the trading community, there will be no major surprises that will throw predictions off kilter.
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