MarketView for April 18

Summary

The major equity indexes were lower again on Thursday with the S&P 500 index ending the day below a key technical level after a number of disappointing corporate forecasts that cast doubt on the market's residual strength. The end result was that the S&P 500 ended below its 50-day moving average of 1,543.04 for the first time this year, giving more weight to views that the market's recent rally is losing momentum, particularly after two days of sharp declines earlier this week. In addition, from a technical perspective, both the Nasdaq 100 and the Russell 2000 indexes have both closed below their 50-day averages this week, adding to the overall technical pressure on the market.

Technology led the day's decline as shares of eBay fell 5.9 percent to $52.82, a day after the e-commerce company posted results and gave disappointing earnings numbers for the second quarter. At the same time, Apple extended its slide from Wednesday, when the stock broke below $400 on an intraday basis for the first time since December 2011. The stock fell 2.7 percent to $392.05 on Thursday.

The CBOE Volatility Index .Wall Street's fear index, gained 6.4 percent to 17.56. The VIX is up roughly 46 percent for the week so far. It still remains well below its recent highs, but the gains could signal a change in the market trend.

Share prices have rallied for much of the year on views that the economy is strengthening and the Federal Reserve will keep its economic stimulus in place. Nonetheless, more recent data on the economy has been less upbeat. On Wednesday, reports showed factory activity in the Mid-Atlantic region cooled in April and the index of leading indicators, a gauge of future U.S. economic activity, fell in March for the first time in seven months.

After the bell, a number of high-profile tech companies reported results, including IBM; whose shares fell 3.5 percent to $200.01 after its earnings missed analysts' expectations. Google rose 0.7 percent to $770.97 after the bell following the release of its results, while shares of Microsoft were up 2.2 percent to $29.43 after its results.

During Thursday's regular session, 7.05 billion shares changed hands on the three major equity exchanges. In comparison, the average daily closing volume is about 6.36 billion this year.

Volume has been heavier on negative days this week, as many investors have anticipated a pullback for some time after stocks' strong run to start the year, and moved quickly to book profits.

The S&P 500's moving average was also the floor of the trading range during the last month, making 1,543 a key technical support. The S&P 500 has posted negative second quarters in the last three years. Shares of Bank of America, which posted disappointing results on Wednesday, fell 2.2 percent to $11.44 on Thursday.

S&P 500 earnings are expected to have risen 1.9 percent in the first quarter, up from the 1.5 percent estimate at the start of the month, based on actual results from 82 companies and estimates for the rest, according to Thomson Reuters data as of Thursday morning.

Of companies that have reported, 72 percent have exceeded analysts' expectations, but only 43.9 percent have exceeded revenue forecasts.

Economic Data of a Mediocre Variety

The number of new claims for unemployment claims rose last week and factory activity in the nation's Mid-Atlantic region cooled in April, further signs of a moderation in economic growth. Underscoring the softening growth outlook, another report on Thursday showed a gauge of future economic activity fell in March for the first time in seven months. They were the latest data to indicate a step-back in the economy after a brisk start to the year as tighter fiscal policy began to weigh.

Economic data for January and February suggested that growth accelerated in the first quarter after activity almost stalled in the final three months of 2012.

However, in a replay of the prior two years, the economy appeared to have hit a speed bump at the end of the quarter, with data ranging from employment to retail sales and manufacturing weakening significantly in March.

Initial claims for state unemployment benefits rose 4,000 to a seasonally adjusted 352,000, the Labor Department said. The four-week moving average for new claims, a better measure of labor market trends, rose 2,750 to 361,250.

While claims rose last week, they were still at levels economists normally associate with average monthly job gains of more than 150,000. That helped ease concerns of deterioration in labor market conditions after an increase in nonfarm payrolls in March was the smallest in nine months.

In separate report, the Philadelphia Federal Reserve Bank said its business activity index fell to 1.3 in April from 2.0 in March. A reading above zero indicates expansion in the region's manufacturing.

It came on the heels of data this week showing a sharp slowdown in factory activity in New York State in April and a dip in national manufacturing output last month.

Details of the survey, which covers factories in eastern Pennsylvania, southern New Jersey and Delaware, showed weakness. Measures of factory employment and new orders contracted.

Inventories fell sharply after being flat in March, an indication that stock accumulation will not contribute to growth in the second quarter. Inventories are expected to have significantly boosted output in the first three months of 2013.

A third report supported views the economy was again headed for a soft patch this spring. The Conference Board said its Leading Economic Index slipped 0.1 percent last month, the first decline since August.

The data provides ammunition for the Federal Reserve to maintain its aggressive policy easing, despite a rift among policymakers on continuing asset purchases.

On Thursday, Minneapolis Fed President Narayana Kocherlakota said the purchases of government bonds and mortgage-backed securities were necessary to boost employment but said they would cause financial market instability for years.

Given recent volatility because of the early Easter and school spring breaks this year, claims are probably not useful in trying to gauge April payrolls.