MarketView for April 25

Summary

The major equity indexes were lower on the day on Friday, primarily because of a selloff in consumer discretionary stocks as bellwether names Amazon and Ford fell in the wake of their quarterly earnings. Amazon was the S&P 500's worst performer, down 9.9 percent to $303.83. Social media names also slid lower with Twitter down 7.1 percent to $41.61. Yet, even with Friday's decline, the S&P 500 index managed to end the week nearly flat. The benchmark index remained within 2 percent of its all-time intraday high.

Amazon's stock declined a day after the company reported an increase in quarterly revenue, which was offset by sharp increases in spending.

Ford closed down 3.3 percent to $15.78 after the company reported first-quarter earnings that missed Street expectations. The company's results were hurt by higher warranty costs in North America.

Meanwhile, Wall Street continued to pay attention to geopolitical strife over Ukraine, creating some nervousness heading into the weekend. President Obama and four European allies agreed on Friday that Russia failed to live up to terms of the Ukraine peace accord, and would coordinate on a response to "impose costs" on Russia, the White House said.

While the situation has taken a backseat to corporate earnings recently, investors remain on edge over the possible result of escalating tensions. Visa said late Thursday that sanctions on Russia were hurting its card transaction volumes. Visa ended the day down 5 percent to close at $198.93.

On the upside, Microsoft’s earnings exceeded Street expectations, as investors were pleased by the software company's new emphasis on mobile and cloud computing. Microsoft's shares were up 0.1 percent to end the day at $39.91.

For the week, the Dow fell 0.3 percent, the S&P 500 was down 0.1 percent and the Nasdaq fell 0.5 percent.

While companies are clearing a lowered bar for earnings, estimates have been improving. Profits are now seen rising 3.3 percent this quarter, down from the 6.5 percent growth rate estimated at the start of the year, but above the low of 0.6 percent seen last week, according to Thomson Reuters’ data.

Healthcare names were among the biggest gainers after LifePoint Hospital's results. The stock advanced 6.3 percent to close at $56.87, while Tenet Healthcare was up 9.1 percent to end the day at $46.11 and Community Health was up 6.6 percent at $39.92.

In the latest economic data, consumer sentiment rose to a nine-month high in April, according to the Thomson Reuters/University of Michigan index. But the services sector expanded at a slower rate.

Trading volume for the day was modest, with approximately 6.26 billion shares changing hands on the major equity exchanges, slightly below the 6.57 billion shares average seen so far this month, according to data from BATS Global Markets.

Consumer Sentiment Rises

According to the Thomson Reuters/University of Michigan's final April reading on the overall index of consumer sentiment, it seems that sentiment rose in April to a nine-month high as views on current and near-term conditions surged rose sharply.

The index came in at 84.1, exceeding an expectation of 83.0 in a Reuters survey and up from 80.0 the month before. The preliminary April reading was 82.6. The headline number was the highest reading since July 2013.

"Perhaps the more important question is whether consumer confidence will show greater resistance to the backslides that have repeatedly occurred in the past few years," survey director Richard Curtin said in a statement.

"Resilience is dependent on positive long term economic expectations. While near term expectations have improved substantially, longer term expectations for personal finances as well as the overall economy have not improved as much."

The survey's barometer of current economic conditions rose to 98.7, its highest reading since July 2007, from 95.7 in March and above a forecast of 97.2. The preliminary reading came in at 97.1.

The survey's gauge of consumer expectations rose to 74.7 in April from 70.0 in March and above an expected 73.7. It also beat the preliminary reading for this month which was 73.3.

The survey's one-year inflation expectation was unchanged from the March reading at 3.2 percent and a tick above the 3.1 percent in the preliminary April reading. The survey's five-to-10-year inflation outlook was also unchanged from last month at 2.9 percent after edging up to 3.0 in the preliminary report.

Service Sector Slows

The financial data firm Markit reported on Friday that the country’s services sector expanded at a slower rate during April than it had during the previous month of March as employment creation decelerated, an industry report showed on Friday.

Markit said its "flash" services Purchasing Managers Index hit 54.2 in April compared with March's final reading of 55.3. A reading above 50 signals expansion in economic activity.

The services sector added employees at the slowest rate in almost two years, with the employment sub-index at 51.0, its lowest since June 2012, down from 51.8 last month.

Markit's "flash" composite PMI, a weighted average of its manufacturing and services indexes, hit 54.9 in April versus 55.7 in March. It was below the average for the first quarter of this year, which was 55.3.

"These data challenge the view among many, including some key policymakers, that the recent deterioration in some of the economic data has been purely a symptom of the adverse weather at the start of the year," said Chris Williamson, chief economist at Markit.

He said surveys are running at a level broadly consistent with annualized GDP growth of 2.0 percent while employment sub-indexes point to non-farm payroll growth sliding to around 100,000 per month.

The government non-farm payrolls report is due next Friday and is expected to show 203,000 net new jobs were created in April, according to a Reuters’ survey.