MarketView for April 23

Summary

The major equity indexes were a bit lower on Wednesday as gains in Boeing and Gilead were offset by slides in AT&T and the wider biotech sector. AT&T fell 3.8 percent to $34.92 a day after the component of the Dow Jones Industrial Average reported earnings that exceeded expectations but were offset by weak service revenue growth. Verizon fell 1 percent to $47.43, while the S&P telecom sector index was down 2.2 percent, easily making it the session's worst-performing sector.

Biotech shares pulled the Nasdaq lower. Amgen fell 5 percent to $113.32, a day after earnings missed forecasts. The Nasdaq biotech index was down 1.5 percent.

There were bright spots within biotech. Gilead Sciences rose 1.4 percent to $73.86 and Illumina gained 3.9 percent to $153.69 after the companies posted results late Tuesday.

Boeing reported first-quarter revenue that exceeded expectations and lifted its core earnings forecast to reflect a tax settlement gain, sending its stock up 2.4 percent to $130.63 thereby providing the Dow with its greatest boost.

After the closing bell, Apple rose 7.3 percent to $563 after the iPhone maker reported quarterly results, approved a seven-for-one stock split and expanded its share-buyback authorization by $30 billion.

In another big move after the close, Facebook gained 4.8 percent to $64.30. Its mobile advertising business continued to accelerate in the first three months of the year, helping the social networking company exceed Wall Street's revenue target.

Better-than-expected earnings have buoyed Wall Street lately, though companies have largely been beating reduced forecasts. Earnings are seen rising 1.6 percent this quarter, down from the 6.5 percent growth rate estimated at the start of the year, according to Thomson Reuters data.

Of the 141 companies in the S&P 500 that had posted results through Wednesday morning, 65.2 percent have exceeded expectations, above the long-term average of 63 percent. On the revenue side, 53.6 percent have exceeded forecasts, below the 61 percent long-term average.

Procter & Gamble’s earnings beat forecasts but sales were flat. The stock slipped 0.3 percent to $80.36.

New home sales were down more than expected to an eight-month low in March, with D.R. Horton off 2.2 percent to close at $21.35.

Volume was light, with approximately 5.67 billion shares changing hands on major equity exchanges, a number that was well below the 6.65 billion share average so far this month, according to BATS Global Markets.

New Home Sales Down Sharply

The Commerce Department reported on Wednesday that sales of new single-family homes fell to their lowest level in eight months during March, all but eliminating hopes for a quick turnaround for a sector that fell into a soft patch last summer.

The Department said on Wednesday sales fell 14.5 percent to a seasonally adjusted annual rate of 384,000 units. It was the second consecutive monthly decline and the largest since this past July. Another way of looking at the situation is that sales were down 13.3 percent from a year ago, marking the largest year-on-year decline since April 2011.

Those who had expected sales to increase, were given to say that the drop suggested some fundamental weakness in the market, although unusually cold weather had also dampened activity.

Housing stocks took a beating on the dour report, with the S&P 500 Homebuilding Index ending down about 1.1 percent. An index of smaller builders closed about 4.0 percent lower. Toll Brothers fell 1.8 percent and DR Horton was down 2.4 percent.

The housing market was slammed by the unusually cold and snowy winter, but higher mortgage rates, a run-up in prices and a shortage of properties that limited options for buyers have also cut into activity.

New home sales last month fell in the Midwest and the South, where unusually cold weather lingered early in the month. They also fell in the West. While sales in the Northeast rose, they failed to recoup even half of the prior month's 33.3-percent plunge.

The sector's weakness could help convince the Federal Reserve to keep benchmark interest rates near zero long after it ends a bond-buying stimulus program later this year. However, it is also unlikely to derail the economy given that other sectors, such as manufacturing, are regaining momentum.

Though new home sales are volatile month-on-month and account for less than 10 percent of the overall market, the drop in March confirmed that housing would again be a drag on gross domestic product in the first quarter. In the fourth quarter, it subtracted from GDP for the first time in three years.

Last month, the inventory of new houses on the market increased 3.2 percent to the highest level since November 2010. While the inventory is up from a record low hit in July 2012, it is not even halfway back to its pre-recession level.

March's weak sales pace pushed the months' supply of houses on the market to 6.0, the highest level since October 2011, from 5.0 months in February. Nevertheless, the median price of a new home last month rose 12.6 percent from March last year to a record $290,000, a reflection of the still-lean inventories.

Apple Reports

Apple has approved another $30 billion in share buybacks till the end of 2015 and authorized a rarely seen seven-for-one stock split, addressing calls to share more of its cash hoard while broadening the stock's appeal to individual investors. The company also approved a roughly 8 percent increase in its quarterly dividend to $3.29 per share.

Shares of the company, which have remained mired around the $500 to $550 range since the start of the year, rose 7 percent to $561.51 in after-hours trading.

Apple reported sales of 43.7 million iPhones in the quarter ended March, far outpacing the roughly 38 million that Wall Street had predicted. That drove a 4.6 percent rise in revenue to $45.6 billion - a record for any non-holiday quarter - and exceeding Wall Street's $43.5 billion projection.

However, as to whether Apple can again produce a revolutionary new product remains the central question in investors' and Silicon Valley executives' minds. The smartphone market is maturing and rivals like Samsung and Google are taking chunks out of its mobile-device market share.

Many hope that the next iPhone, which is expected to have a larger screen with new display technology, will provide a timely lift to the company's bottom line come September, when Apple usually introduces the latest version of its core product.

Speculation also persists that the company will take the lead in wearable devices with a smart watch or other gadget, given that Chief Executive Officer Tim Cook has spoken about "new product categories" for 2014.

For now, the company's momentum in China and emerging markets has been the topic of much discussion in investor circles. On Wednesday, Chief Financial Officer Luca Maestri told Reuters the jump in iPhone sales was "very broad-based," but singled out greater China and Japan, where business got a boost from the recent inclusion of NTT Docomo and China Mobile as carrier partners.

Overall revenue from greater China, which includes Hong Kong and Taiwan, climbed 13 percent to $9.29 billion in the quarter. Japanese sales rose 26 percent to $3.96 billion.