US stocks rallied last week despite mediocre economic data and middling corporate earnings, revealing once again the power of the US policy regime of easy money and low interest rates.
Heading into the week, some market watchers had feared a big correction was looming and an end to the bull market after the sharp fall at the end of the previous week.
However, markets again proved the bears wrong. The Dow Jones Industrial Average added 165.04 points (1.13 percent) to 14,712.55 over the five sessions to Friday.
The broad-based S&P 500 rose 26.99 (1.74 percent) to 1,582.24, while the tech-rich NASDAQ Composite Index jumped 73.20 (2.28 percent) to 3,279.26.
“It’s been a rebound week for asset classes, including the market,” Art Hogan of Lazard Capital Markets said. “We’ve failed to continue with the sell-off that a lot of people were looking for.”
Hogan said the rally came “in spite of the news,” referring to mediocre economic data and earnings reports.
Friday’s report on GDP growth was disappointing at 2.5 percent, compared with expectations of 2.8 percent growth. The report in some ways was not as bad as it looked — consumer spending rose 3.2 percent — but it showed the drag of the federal spending cuts known as the “sequester.”
Yet markets still rose. Briefing.com analysts said investors concluded the US Federal Reserve was not likely to tighten economic policy in the near future.
“The broader market appeared unconcerned as market participants are well aware of the Federal Reserve’s commitment to maintain its accommodative monetary policy for as long as conditions warrant,” Briefing said.
Wednesday’s durable goods report was also feeble. New orders for all durable goods dropped 5.7 percent from February, with most categories losing ground.
In addition, a plethora of earnings reports gave a mixed reading on the economy. The most eagerly anticipated, Apple, reported an 18 percent drop in year-on-year profits, its first such decline in nearly 10 years. However, the tech giant cushioned the blow by more than doubling to US$100 billion the amount it would spend to buy back its stock and pay dividends. Apple closed the week at US$417.20, up 6.8 percent.
Boeing marked up a 20 percent gain in net income despite the global grounding of its newest aircraft, the 787, on battery problems. Boeing said the problems would not dent its profits this year.
Procter & Gamble (P&G) shares fell 5.3 percent for the week on its poor showing. Morgan Stanley characterized P&G’s revenue growth of 2 percent as “disappointing.”
Weak revenue and cautious guidance have been a trend in the current batch of earnings releases, analysts said.
While 70 percent of companies in the S&P 500 have exceeded profit forecasts, only 35.5 percent have exceeded expectations for revenue, Meeschaert Capital Markets president Gregori Volokhine said.
Revenues have been “murky,” while guidance has been “guarded,” Peter Cardillo of Rockwell Global Capital said.
The volume of corporate earnings lets up a bit in the coming week, but there are still some major equities reporting, including Pfizer, Facebook and General Motors.
The week will also be a busy period for economic indicators, culminating with Friday’s monthly release on unemployment and nonfarm payrolls, the most eagerly awaited data point.
For good measure, the central banks will also be active, with meetings on tap of the Fed’s key policy committee and the European Central Bank (ECB). Some analysts think the ECB may slash interest rates.
“We’ve got plenty of things that could make the market move,” Hogan said. “It’s a very catalyst-rich week.”