MarketView for April 14

Summary

It was a much better day for the equity market on Monday as results from Citigroup and bullish retail sales data lifted sentiment, though shares lost ground in the last hour of trading. Both the Nasdaq and the S&P 500 briefly turned negative, though they subsequently returned to positive territory.

Geopolitical concerns returned to the forefront after pro-Russian separatists ignored an ultimatum to leave occupied government buildings in eastern Ukraine as a threatened military offensive by government forces failed to materialize. Rebels in the town of Slaviansk issued a bold call for Russian President Vladimir Putin to help them.

Tension between Moscow and the United States increased over the weekend as a Russian fighter aircraft made repeated low-altitude close-range passes near a U.S. ship in the Black Sea.

An index of Russian stocks fell 1.3 percent and the ruble hit its weakest in three weeks against the dollar as Ukraine's preparedness to fight heightened fears of Russian military intervention and more Western sanctions against Moscow.

Citigroup led financial shares higher after the bank reported quarterly earnings that exceeded expectations, aided by a smaller loss on its troubled assets even as its revenue declined. The stock rose 4.4 percent to $47.67. Among other financials, Bank of America rose 1.5 percent to end the day at $16, while Morgan Stanley closed up 2.1 percent at $29.06.

Biotech shares remained volatile, ending flat. The biotech sector entered bear market territory - defined as a 20 percent drop from its peak - on Friday as investors took profits in the high-flying group and pushed the Nasdaq below 4,000 for the first time in two months.

Intuitive Surgical was the S&P 500's worst performer, falling 3.3 percent to close at $425. 

Brent crude prices climbed 1.4 percent on concerns about supply disruptions or sanctions against Russia.

Retail sales recorded their largest increase in 1-1/2 years in March, a larger gain than had been anticipated and the latest sign that the economy was emerging from its weather-induced slumber.

Medtronic fell 1.9 percent to end at $58.08 after a court ruling temporarily stopped sales of the company's aortic heart valve replacement system in the United States because of a patent infringement. Edwards Lifesciences, the company on the other side of the ruling, closed up 11 percent to end the day at $81. The shares were the S&P 500's best performer.

Shares of Aspen Insurance Holdings rose 11.2 percent to $43.77 after Endurance Specialty offered to buy Aspen for $3.2 billion in cash and stock. Endurance shares fell 2.8 percent to $52.32.

Approximately 5.96 billion shares changed hands on the major equity exchanges, according to BATS exchange data, a number that was below the 6.96 billion shares traded on average so far this month.

Retail Sales Surprise to the Good

The Commerce Department reported on Monday morning that retail sales increased 1.1 percent during March, making it the largest gain in 1-1/2 years and the latest sign that the economy is emerging from its weather-induced slumber and is on track to accelerate during the second quarter.

Retail sales, which account for a third of consumer spending, had risen by a revised 0.7 percent in February. Economists polled by Reuters had forecast retail sales, advancing 0.8 percent last month after a previously reported 0.3 percent gain in February.

Retail sales added to employment data in suggesting the economy found momentum at the end of the first quarter after an unusually cold and snowy winter disrupted economic activity at the end of 2013 and the beginning of this year.

Job growth averaged 195,000 per month in February and March. First-time applications for unemployment benefits in early April fell back to their pre-recession level. That sets up the economy for a pick-up in the second quarter, as does a fading of the drag from the expiration of long-term unemployment benefits and cuts to food stamps.

First-quarter gross domestic product growth estimates range as low as a 0.6 percent annual pace. The economy expanded at a 2.6 percent rate in the fourth quarter. Moreover, improving household wealth, thanks to a stock market boom, rising house prices and some uptick in wages, is helping to support consumption.

So-called core retail sales, which strips out automobiles, gasoline, building materials and food services, correspond most closely with the consumer spending component of gross domestic product, increased 0.8 percent in March. Meanwhile, the Commerce Department also revised February’s increase to a 0.4 percent increase. Core retail sales had previously been reported to have increased 0.3 percent in February.

Retail sales last month were buoyed by a 3.1 percent surge in receipts at automobile and parts dealers. That was the largest advance since September 2012.

Excluding autos, retail sales were up 0.7 percent, the biggest increase in a year, after rising 0.3 percent in February.

Sales at building materials and garden equipment stores increased 1.8 percent, the largest rise in eight months. Receipts at electronics and appliance stores, however, fell 1.6 percent. There were also declines in sales at gasoline stations, which fell 1.3 percent. Excluding gasoline, retail sales rose a solid 1.4 percent, the biggest rise in four years. Sales at furniture stores increased 1.0 percent, as did receipts at clothing stores. There were also gains in receipts at sporting goods shops, restaurants and non-store retailers.

Consumers Grow More Confident

Consumers grew more confident in the labor market last month; with younger workers in particular seeing a greater chance of finding work should they lose their current job, a survey from the Federal Reserve Bank of New York reported on Monday.

The monthly survey found that consumers in March perceived an average chance of 48.95 percent for finding a new job should they lose their current position. That is up from 46.1 percent in February and nearly matches January's reading of 48.98 percent, which had been the highest since last June.

Workers under 40 were the most optimistic. In that group, the chances of finding work were seen at 60.38 percent, the highest since the New York Fed began gathering the data last June.

Other age groups also saw a brightening picture, although the oldest workers continued to see a low likelihood of being reemployed if they lost their jobs.

Those between 40 and 60 assigned a 45.52 percent probability of being able to find a replacement job, up from 43.49 percent in February. Respondents over 60 saw just a 30.39 percent chance, but that was up from a reading of 25.4 percent in February, which was the lowest level in the series history.

The bank, one of the 12 regional banks in the Fed system, began publishing its national consumer survey findings in January. The bank also asks consumers their opinions of inflation, household finances and wages.