For the second week running the S&P 500 index finished the week on a downbeat note, despite a solid earnings week. The weakness on Friday can be in part explained by the weakness in Apple share price. Due to the market capitalisation of Apple the moves in the share price influence the broader index. Apple, Microsoft, Facebook and Amazon account for more than ten percent of the S&P 500. Again, despite Friday's decline of nearly 1%, the index did manage to cling to some modest gains. The FTSE 100 had another decent week, bucking the trend of other developed markets as the pound retreated towards 1.4 to the US dollar. This was after Mark Carney suggested at the end of the week that the Bank may wait till later than May to raise interest rates.
US equity prices may also have been influenced by the moves in the bond market as the US ten-year Treasury fell, which led ten-year yields climbing back over 2.9%. The rise in yields was as a result of a pick-up in inflation expectations, this did result in a small steepening of the yield curve. According to Barron’s equity sentiment indicators, equity sentiment picked up modestly this week. The Vix index remains below its long-term average of 20. Other encouraging signs for the market the Dow transport index gained 2% on the week. The price of oil which has been boosted by the increased political tensions around the globe retreated slightly after Trump tweet but remains close to the recent multi-year highs.
Just under one-fifth of the S&P 500 companies have reported earnings so far. Of those companies, almost 80% have beaten earnings expectations. The coming week will be even more telling as 181 S&P 500 companies report earnings. It would appear, at least so far, that companies are managing to meet lofty expectations.
Looking to the week ahead, aside from company earnings, there are several data points for investors to focus on. At the start of the week for the US we get the flash Purchasing Manager Surveys for the month of April, then on Thursday Durable goods orders for March and then on Friday the first estimate for economic growth in the first quarter for the worlds largest economy. Likewise, on Friday in the UK where expectations are that the economy will have grown by 0.4% in the first quarter and by 1.4% year on year.
This week the central bank of Japan and European Central Bank meet to decide interest rates. Neither is expected to change policy, however where Europe is concerned in particular the tone of the statement that accompanies the decision and Mario Draghi’s press conference could well influence market sentiment.