MarketView for April 24

Summary

The S&P 500 and Nasdaq ended flat on Wednesday with Boeing's five-year high among the day's highlights, but weakness in Procter & Gamble and AT&T kept the Dow in negative territory. Procter & Gamble fell 5.8 percent to $77.12 after the company issued a profit outlook that was below expectations. It was the stock's largest decline since January 2009, and contributed to a 1.7 percent drop in the S&P consumer staples index. AT&T reported a net loss of cell phone subscribers in the first quarter as it lost market share, sending its shares down 5 percent to $37.04.

Materials and energy stocks led the S&P 500's gains as copper and oil prices bounced back from recent declines. Commodity gains were capped by worries about the outlook for global economic growth. A sharp drop in durable goods orders last month added to that concern, putting a lid on equity gains.

Microsoft led overall gains among S&P 500 components with a 3.8 percent advance to $31.76 after announcing it will unveil its much anticipated next-generation Xbox on May 21.

Boeing rose 3 percent to $90.83, its highest since December 2007, after the aerospace company reported earnings that beat expectations. In contrast, shares of Amgen fell 6.9 percent to $104.93, weighing on the Nasdaq and the S&P 500 a day after the drug company reported first-quarter sales below Street expectations.

About 6.3 billion shares changed hands on the three major equity exchanges, slightly below the daily average so far this year of about 6.4 billion shares.

Durable Goods Orders Drop Sharply

Durable goods orders for March recorded their largest decline in seven months and a gauge of planned business spending were up only modestly, the latest signs of a slowdown in economic activity. Durable goods orders fell 5.7 percent as demand fell almost across the board, the Commerce Department reported. The decline in orders for these goods - items from toasters to aircraft that are meant to last three years or more - followed a 4.3 percent rise in February.

The drop, which was double what the Street had expected, provided a fresh indication of cooling at factories that had played a central role in the economy's recovery from recession. It also joined a range of other data covering items from employment to retail sales that have shown the economy lost a step at the end of the first quarter.

The slowdown, dubbed the spring swoon, has been largely blamed on belt-tightening in Washington as the government tries to slash its bloated budget deficit. Uncertainty over the impact of deep government spending cuts, known as the Sequester, could be making businesses more cautious about rolling out capital projects.

Last month, non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, edged up 0.2 percent. Orders for these so-called core capital goods fell 4.8 percent in February and the expectation had been for a 0.4 percent increase in March.

Against the backdrop of a tame inflation environment, the soft durable goods data strengthened the argument for the Federal Reserve to maintain its monetary stimulus. The U.S. central bank meets next week and is widely expected to keep purchasing bonds at a pace of $85 billion a month.

Shipments of core capital goods - which the government uses to calculate equipment and software spending in its gross domestic product report - rose 0.3 percent in March. However, shipments for February were revised to show a 1.2 percent rise rather than the previously reported 1.9 percent increase. That suggests growth in business spending in the first quarter slowed sharply from the fourth quarter's 11.8 percent annual pace.

While the fall in durable goods orders last month was led by a 15 percent plunge in demand for transportation equipment, other segments of the report, including primary metals and electrical equipment, were also weak.

There were gains only in orders for motor vehicles and computers and electronic products. Meanwhile, unfilled orders fell, indicating that there is are declining backlogs at the nation's factories. The absence of an overhang of unsold goods was a hopeful sign as factories will be able to ramp up production once orders pick up.

It Is Hard To Admit You Are Wrong

ECB policymakers rebuffed suggestions that Europe should ease up on austerity and said that while the central bank has room to cut interest rates, such a move would not necessarily help the economy much.

European Central Bank Vice-President Vitor Constancio said that seeking to stimulate economies by stopping measures aimed at cutting government debt could merely increase countries' borrowing costs rather than triggering growth.

Finance leaders of the G20 economies last Friday edged away from a long-running drive toward cutting spending and raising taxes in rich nations, rejecting the idea of setting hard targets for reducing national debt in a sign of concern about a sluggish global recovery.

With budget cuts blamed for a second straight year of recession in the euro zone, the EU's top economics official Olli Rehn indicated over the weekend that more flexibility on tough economic targets was needed. His boss, European Commission President Jose Manuel Barroso, said on Monday that austerity had reached its natural limits of popular support. At the same time, recent surveys and data have pointed to economic weakness spreading to the euro zone core.

However, ECB policymakers did not accept that weaker growth was a reason to change course on reform, insisting that more balanced budgets were essential to revive sustainable growth.