Market Perspective for April 22, 2016

European markets posted stronger gains, while U.S. indexes were up slightly for the week. The Dow Jones crossed 18,000 and the S&P 500 surpassed 2,100, though the indexes were unable to hold those gains following technology earnings misses released Thursday night. European stocks held most of their advances despite unchanged rates, while Japanese shares rallied on stimulus expectations. Oil prices firmed during the week to support the commodity market.

Domestic stocks were lifted by energy and financials firms. Shares of Goldman Sachs (GS) and Morgan Stanley (MS) advanced on better-than-expected earnings, while shares of American Express (AXP) rose as the company reported quarterly EPS and revenues that beat consensus estimates. AXP reported a widening client base and increased transactions in the prior quarter.

Regional banks also performed well following strong earnings from BB&T Corp (BBT), Fifth Third (FITB) and Citizens Financial Group (CFG), the latter of which also hiked its dividend. In a sign of the sector’s strength, even a miss at PNC Financial (PNC) failed to derail the stock, with shares headed for a 4 percent gain on the week. SPDR S&P Regional Banking (KRE) held a 3.7 percent gain in late Friday trading. The broader Financial Select Sector SPDR ETF (XLF) gained slightly over 2 percent.

The Energy Select Sector SPDR exchange-traded fund (XLE) rose 5 percent on the week even without an agreement to freeze production output at the OPEC meeting in Doha.

On Monday, International Business Machines (IBM) beat earnings and revenue expectations. The company’s forward guidance left investors concerned as Big Blue sheds older technologies and pushes further into the competitive cloud computing space. Shares of IBM were down on the week. Intel Corp (INTC) reported earnings at the lower range of consensus estimates. The company will be cutting approximately 12,000 jobs from its global workforce. Shares of INTC were unchanged on the week. Netflix (NFLX) reported weaker-than-expected guidance on Monday, but the broader Internet sector shook off the news by midweek. Technology funds held firm until after the bell on Thursday, when earnings misses from Alphabet (GOOG) and Microsoft (MSFT) put pressure on the sector.

The National Association of Home Builders survey came in at 58 for the third consecutive month, indicating cautious optimism. Although U.S. housing starts fell to their lowest level since October, existing home sales climbed more than 5 percent as buyers took advantage of a strong labor market and near-record low interest rates.

On Thursday, the Philly Fed manufacturing survey missed expectations with a reading of -1.6 instead of the consensus estimate of 10, even further below last month’s 12.4 reading. The Markit flash PMI also came in below expectations on Friday, at 50.8, but still shows expansion. Initial weekly unemployment claims fell even more than expected and remains at multi-decade lows.

This week was marked by rotation into value sectors. Growth, which is heavily invested in technology, has led almost the entirety of this bull market, but value shares are more reliant on financials and have recently gained ground. Consumer staples and utilities led into late March prior to an energy rally, followed by healthcare and now financials. SPDR S&P 500 Growth (SPYG) is down about 0.9 percent this week due to the drag from technology, while the value fund SPYV, which counts financials as its largest sector, is up about 1.6 percent. This move occurred even though utilities and consumer staples fell with weaker-than-expected Coca-Cola (KO) revenue that sent shares down as much as 8 percent post-earnings before rebounding.

Rotation into healthcare also continued this week. UnitedHealth Group (UNH) delivered solid earnings and powered the rally with its decision to quit the Affordable Care Act in most states next year. Shares of iShares US Healthcare Providers (IHF) climbed 3 percent on the week. iShares US Medical Devices (IHI) increased about 1 percent, iShares Nasdaq Biotech (IBB) rallied about 2 percent and SPDR Pharma (XPH) advanced 4 percent. The move by UNH is likely to put the spotlight on the healthcare sector as the presidential campaign heats up.

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