U.S. equities drifted lower on Friday as buyer exhaustion set in after an exciting week. The Nasdaq Composite pushed further above the 6,000 level at the open, setting a new intra-day high after a batch of big-tech earnings overnight. But the results were mixed, with Microsoft Corporation (NASDAQ:MSFT) and Intel Corporation (NASDAQ:INTC) disappointing.
Also, weighing on sentiment is lingering disappointment with President Trump’s tax proposal on Wednesday (light on details and set to add trillions to the national debt), a lack of progress on healthcare reform, and ongoing concerns about a potential government shutdown (despite a one-week stopgap bill moving through Congress).
But above all, investors were unhappy with a very weak Q1 U.S. GDP growth report: Coming in at just 0.7% as consumer spending posted its weakest result since the end of 2009.
In the end, the Dow Jones Industrial Average lost 0.2% as it bonked on overhead resistance from its early March highs, the S&P 500 lost 0.2%, the Nasdaq Composite lost a fraction and the Russell 2000 finished 1.2% lower. Treasury bonds were unchanged, the dollar was little change, gold gained 0.2% and crude oil gained 0.7% but was unable to recover the 1.3% loss from Thursday.
The gains in T-bonds boosted the ProShares Ultra Treasury Bond (NYSEARCA:UBT) to a 0.9% gain so far this month for Edge subscribers.
Breadth was negative, with 1.6 decliners for every advancer on the NYSE on heavy volume, at 122% of the 30-day average. Technology stocks led the way with a 0.3% gain thanks mainly to Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB). The vertical surge in GOOG looks a lot like the 1999/2000 dot-com craziness as investors piled in following the reporting of better-than-expected results on strong advertising revenue on Thursday night.
On the downside, Time Inc (NYSE:TIME) fell 16.9% after announcing it had rejected a number of expressions of buyout interest — fueling fears of fiefdom on the part of management. Synchrony Financial (NYSE:SYF) fell 15.9% after a big Q1 earnings miss on higher loan loss reserves. Intel Corporation (NYSE:INTC) fell 3.5% despite reporting solid results amid a focus on weakness in its data center group. And Starbucks Corporation (NASDAQ:SBUX) fell 2% after reporting weaker-than-expected comp-store sales growth and issued lowered earnings guidance.
Returning to the economy, GDP growth slowed from the 2.1% pace set in 4Q16 to its slowest pace in three years. Personal consumption increased just 0.3% following a 3.5% expansion in Q4; which is exceedingly odd given off-the-charts survey-based measures of consumer confidence in recent months. Bright spots included non-residential fixed investments (businesses are ramping up spending). Inventories were a drag.
Still, the weakness doesn’t appear set to slow the Federal Reserve rate hike pace. Inflation picked up, rising at a 2.4% annual rate for the biggest jump since 2011. The labor market remains strong. Confidence levels are high. And Wall Street anticipates a Q2 rebound in GDP growth.
We’ll know more when the Federal Reserve holds its policy meeting next Wednesday and when the latest jobs numbers are released on Friday. We’ll also get updates on personal income and consumption, motor vehicle sales (a recent worry), and fresh data on labor costs and productivity. It’s a busy schedule, made worse by the ongoing need for Congress and the White House to pass a long-term budget deal.
Expect market volatility to intensify. In anticipation, Edge Pro subscribers added a new put option position against Bank of America (BAC) as the bank looks ready to drop out of a large head-and-shoulders reversal pattern that traces a price target below its 200-day moving average.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. A two-week and four-week free trial offer has been extended to Investorplace readers. Redeem by clicking the links above.
