U.S. equities dropped on Friday as investors looked toward the over-the-weekend meeting in Doha between Russia and the various OPEC nations concerning a possible oil supply freeze deal that’s been hinted at — and been boosting oil prices and stocks — since February.
In the end, the Dow Jones Industrial Average lost 0.2%, the S&P 500 fell 0.1%, the Nasdaq Composite edged down 0.2% and the Russell 2000 bucked the trend to gain 0.2%. Treasury bonds moved higher, gold gained 0.7% and crude oil lost 2.7% to close at $40.37 a barrel.
Defensive utility and consumer staples stocks led the way with gains of 0.7% and 0.6%, respectively. Regions Financial Corp (NYSE:RF) gained 3.1% after reporting better-than-expected first-quarter earnings on net interest margin upside.
Energy stocks led the decliners, falling 1.3% as a group, on the drop in oil. 3D Systems Corporation (NYSE:DDD) fell 6.2% after being downgraded to neutral by analysts at Citigroup.
The data was mixed on the economic front, with the Empire State manufacturing activity survey surprising to the upside on a rise in new orders but industrial production continuing a recent string of weakness in March falling 0.6% vs. expectations for a flat result pulling the year-over-year decline to 2%. Output has now dropped in six of the last seven months. Consumer sentiment also disappointed, with the University of Michigan survey falling when analysts expected a rise, the fourth consecutive drop driven by a slowdown in expected wage gains and concerns that job growth would slow.
In China, there was evidence the economy has turned a corner. While Q1 GDP growth slowed lightly (rising 6.7% vs. 6.8% previously), other data was more constructive. Industrial production rose 6.8% vs. 5.4% in the January-February period and ahead of the 5.9% expected. Fixed-asset growth improved as did credit growth.
With downside risks to the Chinese economy one of the reasons the Fed has said it wanted to be patient with rate hikes this year, the data should do much to meliorate these concerns and provide policymakers with one less excuse for delaying further policy tightening.
Turning back to Doha, Wall Street analysts are busily downplaying expectations. Iran remains a wildcard, vowing to not sign any deal unless it allows the country to ramp back up to pre-sanctions output levels near four million barrels per day (vs. around 3.3 million now). A Russian official has warned that any agreement is likely to be loosely worded, which means it probably won’t include any hard enforcement mechanisms.
And with major producers already pumping near capacity, a freeze isn’t likely to change the supply/demand balance as the IEA noted earlier this week.
In other words, expect some “buy the rumor, sell the news” (or lack of news) on all this next week, which will put a damper on both stocks and crude oil. Also watch for a number of big earnings reports next week, including International Business Machines Corp. (NYSE:IBM), Morgan Stanley (NYSE:MS) and Netflix, Inc. (NASDAQ:NFLX), among others, as the chatter from Fed officials dies down and they enter a media blackout period ahead of their policy meeting later in the month.
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