During a heavy week of earning releases, the equity market advanced 1.12% with investors liking what they heard. In the U.S., 77% of the S&P 500 companies that have reported beat earnings per share estimates. Earnings per share growth for all companies is up 12.4%, with companies surpassing estimates, reporting 8.5% above original projections. Communication services, healthcare and utilities led with energy, materials and staples at the bottom of the earnings changes for the first quarter. While earning reports were full of upside surprises, sales advanced a more modest 3.9% year-over-year. This advance brings the market recovery back full circle to levels before the April 2 tariff announcements, yet still down 6.2% from the February market high.
Bond market prices declined the first part of the week, only to stage a rally to cut the earlier loss in half, posting a -0.51% return for the week. The late week rally corresponds with a better than expected 10-year U.S. Treasury auction, reflecting strong demand from both U.S. and overseas buyers and recent stability in the U.S. dollar this month. Despite declines in credit spreads for both corporate and mortgage sectors, it was not enough to counterbalance the rise of rates across the U.S. Treasury curve that saw 10-year U.S. Treasury notes climb from 0.10% to 4.28%.
Yields moved higher on a series of economic prints that surpassed economic growth projections, despite elevated levels of uncertainty about the future path of jobs and prices. U.S. job growth was stronger than expected as payrolls increased 177,000 last month. The prior two months’ advances, however, were revised lower, according to the Bureau of Labor Statistics’ April data. The unemployment rate was unchanged at 4.2% as firms are taking a wait-and-see approach amid the uncertain economic outlook before changing the course on layoffs or new hiring.
Providing a tailwind for equity markets this week were better than expected reports on manufacturing and services from the Institute of Supply Management. However, the results were not particularly robust, as U.S. manufacturing activity shrank in April by the most in five months due to lean order books and tariff repercussions. Services expanded more than expected in April, with the ISM Services PMI printing at 51.6, above forecast estimates. Uncertainty remains a factor, driving a pull-forward of spending and lifting prices higher as venders react to a cloudy picture of the impact tariffs will have on final input prices and future sales.
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Sources: BTC Capital Management, FactSet Research Systems Inc., Federal Open Market Committee (Federal Reserve) LSEG I/B/E/S, FTSE Russell (an LSEG Group company), S&P Global, U.S. Bureau of Labor Statistics, U.S. Census Bureau.
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