MarketView for April 23

Summary

The major equity indexes chalked up more than a 1percent gain on Tuesday in a broad rally, as the markets recovered from sharp declines sparked by a "bogus" Associated Press tweet about explosions at the White House. A false tweet by hackers of two explosions at the White House that injured U.S. President Barack Obama provoked a steep drop in stocks, before they quickly recovered minutes later.

Thomson Reuter’s data indicated that the benchmark S&P 500 index fell 14.6 points, or 0.93 percent, in the space of 3 minutes when the tweet hit the market. With the S&P 500 valued at about $14.6 trillion at the time of the false tweet, the plunge briefly wiped out $136.5 billion of the index's value.

The move was a reminder of the May 6, 2010, tumble in markets now known as the "flash crash," when the Dow industrials dropped more than 600 points, eventually piling up a loss of about 1,000 points, in a few minutes before recovering.

Stocks had seen a solid advance before the tweet, lifted by a host of strong corporate earnings, including Travelers, Netflix and Coach. Netflix Inc shares jumped 24.4 percent to $216.99 while Coach shot up 9.8 percent to $55.55. They were the S&P 500's two largest percentage gainers.

Shares of Netflix moved higher after the company reported earnings that exceeded expectations and strong subscriber growth. Coach benefitted higher-than-expected quarterly sales. Travelers helped lift the Dow, up 2.1 percent at $86.35 after the insurer posted earnings that exceeded expectations and announced an increase of its dividend.

After the closing bell, Apple rose 4.9 percent to $425.95. Apple reported second-quarter earnings and unveiled plans to double the amount of capital it returns to shareholders.

Earnings season has been largely positive, with more than 68.9 percent of S&P 500 companies that have reported results so far beating expectations, according to Thomson Reuters data. Since 1994, 63 percent have surpassed estimates on average, while the beat rate is 67 percent for the past four quarters.

Meanwhile, the S&P 500 index is up 2.4 percent over the past three sessions. The Street is currently expecting earnings growth of 2.3 percent this quarter, up from expectations of 1.5 percent at the start of the month.

Housing stocks were among the best performers, after Barclays raised its rating on the homebuilding sector to "positive" from "neutral." The sector also got a lift from encouraging housing data, with new home sales up 1.5 percent in March.

A 9.3 percent gain in the shares of Toll Brothers to $34.13 had Barclays raising its recommendation on Toll Brothers' stock to an "overweight" rating as part of the firm's broader sector call.

Volume was active, with about 6.39 billion shares changing hands on the three major equity exchanges, a number that was slightly above the daily average of 6.38 billion shares.

Factory Activity Slows

Factory activity expanded at its slowest pace in six months in April, the latest sign that economic growth continued to lose momentum early in the second quarter, though the recovery has not been derailed. Financial data firm Markit said its "flash," or preliminary, factory purchasing managers' index fell to 52.0 this month from 54.6 in March as output, employment and new orders pulled back. It was the lowest index level since October, though a reading above 50 does indicate growth.

While the Markit PMI has a shorter history and has been trending higher than an established, competing index from the Institute for Supply Management, its direction is in line with other surveys showing a cooling in manufacturing activity in April.

The Richmond Federal Reserve Bank said on Tuesday its gauge of factory activity in the central Atlantic region dropped into negative territory this month, pulled down by weak shipments and new orders.

The region covers the District of Columbia, Maryland, North Carolina, South Carolina, Virginia, and most of West Virginia. These are among states expected to be hardest hit by deep government spending cuts.

Taken together with other weak regional manufacturing surveys released so far this month, Tuesday's factory data pointed to a slackening in activity at the start of the second quarter, economists said.

Although manufacturing accounts for only about 12 percent of the U.S. economy, it has played a pivotal role in the recovery from the 2007-09 recession.

The government is expected to report on Friday that the economy grew at a 3.0 percent annual rate in the first quarter, according to a Reuters survey, rebounding from a paltry 0.4 percent gain in the final three months of 2012. The Street is looking for an expansion of only around 1.5 percent or so in the April-June period.

Data ranging from employment to retail sales and manufacturing weakened significantly in March, when the sequester began to take effect, and the Markit and Richmond Fed reports suggested the soft patch carried into the second quarter.

A separate report from the Commerce Department showed new home sales increased 1.5 percent to a seasonally adjusted annual rate of 417,000 units last month.

The increase was encouraging in the wake of data on Monday that showed home re-sales fell in March and a report last week that said sentiment among homebuilders dropped in April for a third straight month. 

The momentum in the housing market has slowed somewhat because of a lack of supply of homes for sale in some major regions. Last month, there were 153,000 new homes on the market, not far from record lows. The inventory represents sales supply for only 4.4 months, below the six months that is normally considered a healthy balance between supply and demand.

Another report, from the Federal Housing Finance Administration, showed prices for houses financed with mortgages that have been sold to or guaranteed by Fannie Mae and Freddie Mac rose 0.7 percent in February after advancing 0.6 percent in January.