Not such a good week for equity prices as the FTSE 100, the S&P 500 and the euro first 300 all finished the week lower. According to a Financial Times market report this was the worst weekly performance since February’s sharp sell off for the S&P 500. The combination of a disappointing first quarter GDP estimate and a continued mixed earnings picture meant the S&P 500 lost just less than 1% on the week. The Vix finished the week above 15, having almost touched 17 at one point on Friday.
Again according to a report in the FT, earnings decline so far for the first quarter year on year has been 7.6%, against expectations of a fall of 8.7%. This is a small crumb of comfort as this will be the fourth quarter of earnings decline year on year. The banks have generally done better than forecast but several names including Apple and Microsoft have failed to meet expectations. One further crumb of comfort, according to Fact set, a third of companies in the S&P 500 have offered positive guidance for the second quarter against an historical average of 27%. Again according to Fact set analysts have lowered earnings expectations for the second quarter by 1.8% in April. The last crumb from the biscuit is the decline in the bottom-up EPS estimate recorded during the first month of the second quarter is smaller than in previous years. Despite this the reality is earnings forecast for the S&P 500, at $125 a share, has not moved since mid 2014.
Looking forward to the week earnings will remain in focus as companies such as Walt Disney, Wal-Mart and Pfizer are yet to report, it will also be another busy week for macro data. If we take the UK first, for a change, on Monday the Halifax report the latest house price index, where a year on year gain of 10% for April is expected. On Tuesday the Markit Manufacturing Purchasing Mangers Index (PMI) is released, expectations are for the index reading to come in at 51.1. On Wednesday the construction PMI, on Thursday Services PMI as well as the local elections and London get’s to vote for a new Mayor. These elections may be of more significance than historically, as we may get some indication as what impact the Brexit campaign is having on voter sentiment.
Onto the US economy, on Tuesday we get the Institute for Supply Management’s PMI readings for April. Forecasts are for a small dip from last months reading but to remain above the critical 50 mark. On Tuesday we get the IBD/TIPP Economic Optimism reading for May. This is a relatively small survey, a reading above 50 indicates optimism and below 50 pessimism. Forecasts are for a reading of 46.3. This sentiment indicator, like all others, can sometimes work as a contra indicator for markets. On Thursday more PMI readings from research company Markit. PMI index readings are considered forward looking economic indicators, this is why so much focus is put on them.
It’s the same picture for China as the NBS Manufacturing and non-manufacturing PMI’s are released at the start of the week. For Europe the data is released on Wednesday along with the latest retail sales data. On Thursday we get the latest the ECB economic bulletin.