Market Commentary: Earnings Momentum Propels Stocks Higher

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The week’s market commentary  starts out with a sharp drop on Monday, with European markets dropping more than 2% and a lesser decline in the U.S. The negative reaction was caused by a rejection of European Union-imposed austerity measures by the Dutch government, combined with the Socialist Party winning the first round of the French presidential election. While Europe’s recent trend to reject fiscal austerity is a potential positive for short-term economic conditions, investors are becoming somewhat more concerned about a breakup of the European Currency Union and potential impacts that may have.

By John Toohey, Vice President, Equity Investments

Following Monday’s sell-off, stocks recovered and marched higher on generally positive earnings reports. Apple Inc.’s Tuesday release of substantially better-than-expected first quarter earnings set a positive tone for the rest of the market. Other companies exceeding earnings estimates included 3M Co., Boeing Co., Inc. and Ford Motor Co. However, some companies announced earnings shortfalls, including Exxon Mobil Corp., Aetna Inc. and CMS Energy.

The good earnings news offset this week’s release of weaker-than-expected March durable goods orders (down 4.2% overall and down 1.1% excluding transportation equipment) and slightly higher-than-expected jobless claims (388,000 vs. 375,000 forecast). In addition, first quarter inflation-adjusted economic growth was 2.2%, less than the 2.5% expected and down from the prior quarter’s growth rate of 3%.

The S&P 500 index rallied to close the week at 1,403, a 1.83% gain. U.S. Treasury bonds were mixed, with the yield on the 10-year closing the week at 1.93%, down 0.03%. Gold ended the week at $1,663, an increase of 1.21%.

This material is for informational purposes and is not investment advice.

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