Bumpy Ride For Investors
New York (Apr 20) US equities finished mixed in a choppy session with a sundry of earnings reports pitting weakness in the tech sector on International Business Machines (NYSE:IBM)'s disappointing outlook, with a rebound in crude oil prices, which benefited the energy space. Meanwhile, financials got a boost from Goldman Sachs' beat, but Netflix's softer-than-expected guidance also weighed on the Nasdaq. Treasuries were lower, despite a disappointing housing construction report, gold prices jumped, and the U.S. dollar was lower.
The Dow Jones Industrial Average (DJIA) rose 49 points (0.3%) to 18,054, the S&P 500 Index added 6 points (0.3%) to 2,101, while the Nasdaq Composite lost 20 points (0.4%) to 4,960. In moderate volume, 886 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.28 to $42.47 per barrel, wholesale gasoline was $0.04 higher at $1.48 per gallon and the Bloomberg gold spot price jumped $18.87 to $1,251.36 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% lower at 94.01.
Dow member Goldman Sachs Group Inc. (NYSE:GS $163) reported 1Q earnings-per-share (EPS) of $2.68, above the $2.42 FactSet estimate, as revenues dropped 40.3% year-over-year (y/y) to $6.3 billion, below the projected $6.8 billion. The company said the operating environment this quarter presented a broad range of challenges, resulting in headwinds across virtually every one of its businesses. Shares traded higher.
Netflix Inc. (NASDAQ:NFLX $94) posted 1Q EPS of $0.06, two cents north of forecasts, as revenues rose 24.4% y/y to $2.0 billion, roughly in line with estimates. However, the company issued softer-than-expected 2Q EPS guidance, while its outlooks for domestic and international streaming subscriber additions also missed expectations. NFLX was sharply lower.
Dow component International Business Machines Corp. (NYSE:IBM $144) announced 1Q profits ex-items of $2.35 per share, above the projected $2.09, with revenues declining 5.0% y/y to $18.7 billion, versus the expected $18.3 billion. IBM reaffirmed its full-year EPS outlook, but its implied 2Q profit outlook came in well below analysts' expectations, per Bloomberg. Shares were noticeably lower.
Dow member UnitedHealth Group Inc. (NYSE:UNH $130) reported 1Q EPS ex-items of $1.81, north of the expected $1.72, as revenues grew 25.0% y/y to $44.5 billion, compared to the projected $44.3 billion. UNH raised its full-year outlook. Shares were nicely higher.
Dow component Johnson & Johnson (NYSE:JNJ $113) achieved 1Q earnings ex-items of $1.68 per share, topping the expected $1.65, as revenues increased 0.6% y/y to $17.5 billion, mostly in line with estimates. JNJ raised its full-year guidance and shares finished higher.
March housing construction activity misses the mark
Housing starts for March fell 8.8% month-over-month (m/m) to an annual pace of 1,089,000 units, compared to the Bloomberg forecast of a 1,166,000 unit rate. February's starts were upwardly revised to an annual pace of 1,194,000. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, dropped 7.7% m/m in March to an annual rate of 1,086,000, after February's upward revision to a 1,177,000 rate, and below the expected annual pace of 1,200,000 units. Activity for single-family and multi-family structures both declined in March.
The report is historically volatile and some economists are cautioning about reading too much into one month's worth of data, while yesterday's NAHB homebuilder sentiment report pointed out that builders remain cautiously optimistic about construction growth in 2016. Also, interest rates continue to be quite low and the high rental rates in some areas of the country provide the incentive for home buying. Although we’re unlikely to exit from a muddle-through state, the risk of recession is objectively low.