US stocks finished the week on a positive note after a bruising two-day retreat following a dismal US economic growth report.
Friday’s rally limited the losses, with the Dow Jones Industrial Average finally dipping 56.08 points (0.31 percent) for the week to 18,024.06 and the broad-based S&P 500 shedding 9.40 (0.44 percent) to 2,108.29.
The decline in the NASDAQ was deeper, with the tech-rich index dropping 86.7 (1.7 percent) to 5,005.39
In a week packed with major earnings, economic reports and a US Federal Reserve meeting, the most impactful news was Wednesday’s stunner that the US economy grew just 0.2 percent in the first quarter.
The dismal gross domestic product figure, reflecting in part the drag from exceptionally cold winter weather and the West Coast port strike, prompted soul-searching on Wall Street.
“What a disappointment to think the US economy barely grew at all in the first quarter with the fed funds rate at the zero bound for more than six years now,” Briefing.com analyst Patrick O’Hare said.
The GDP report was followed later on Wednesday by a Fed policy statement that said the slower growth was due “in part” to transitory factors and that the economy should resume expanding at a “moderate pace.”
The communique suggested the Fed still expects to begin a slow series of rate rises in the coming months, though probably not next month.
Wells Fargo Investment Institute senior global equity strategist Scott Wren said the market “had a little tough time processing” the GDP data.
However, after two days, investors shrugged off their fears.
“The market is feeling better that the Fed’s not going to do too much here and that the economy is going to move forward at a modest pace,” he said.
Other data last week was mixed. The US Conference Board’s index of consumer confidence fell sharply to 95.2 last month from 101.4 in March. Other reports showed a modest rise in consumer spending in March and sluggish growth in manufacturing activity last month. US auto sales picked up last month.
Companies have generally bested what were very low expectations ahead of first-quarter earnings season. Of the 347 companies in the S&P 500 that have reported, 238 have reported earnings ahead of expectations, while 76 have missed, with the rest coming in at levels forecast by analysts. Only 45 percent have beaten expectations for revenues, according to S&P Capital IQ.
Standouts this week included drug giant Merck (up 3.9 percent this week), which raised its full-year forecast after adjusted earnings per share in the first quarter came in at US$0.85, US$0.11 above forecasts.
The market also a cheered a sunny report from online travel site Expedia, which reported a 19 percent increase in gross bookings and a 14 percent gain in revenue, lifting the stock 7.9 percent on Friday. However, other technology stocks suffered double-digit declines following disappointing results. This group included LinkedIn, Twitter, Yelp and Stratasys, a 3D printing company.
In other corporate news, generic drugs company Mylan finished the week 2.9 percent lower after it balked at an unsolicited takeover campaign from rival Teva even as its own proposed acquisition of Perrigo was again rejected.
Perrigo and Teva both fell 3.4 percent. Applied Materials agreed with Tokyo Electric to abandon their nearly US$10 billion merger agreement, citing opposition from the US Department of Justice on antitrust grounds.
Starwood Hotels & Resorts Worldwide announced it hired investment bank Lazard to undertake a strategic review of the company to enhance shareholder value. The move sparked speculation that Starwood, which owns the Westin hotel chain, could be acquired.
Next week’s calendar includes a handful of major earnings reports, including from Disney and 21st Century Fox. The schedule also contains some important economic releases, including last month’s jobs report from the US Department of Labor.
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