U.S. stocks continued their recent trend of falling on Friday but ended the week with modest gains as Treasury bond yields soared to their highest levels in more than four years.
The Dow, S&P 500 and NASDAQ closed higher by 0.4% to 0.6% for the week despite fairly sharp losses on Friday. Both the Dow and S&P lost about 0.8% on Friday while NASDAQ dropped 1.3%, largely due to a more than 4% decline in Apple shares on bearish iPhone sales forecasts. Apple is a component of all three major indexes. But the big story of the week was the surge in bond yields, which rose for the third straight week. The yield on the U.S. Treasury’s benchmark 10-year note jumped 14 basis points on the week to 2.96%, its highest level since late 2013. Bond yields, which were also higher in Europe and Japan, have been rising as the world economy continues to improve, which is pushing up commodity prices, particularly oil.
Foreign stocks were mostly higher except in China, despite a report showing the country’s economy growing faster than expected. The Chinese economy grew at an annual rate of 6.8% in the first quarter, the same pace as the previous quarter, despite predictions of a cooling off. Retail sales jumped an annualized 9.8%. Yet the Shanghai composite index fell 2.8%, falling to its lowest level since last May. Hong Kong stocks were also down, falling 1.3%. But euro zone stocks rose for the fourth week in a row. Japanese stocks gained 1.8%, their fifth straight weekly increase.
The International Monetary Fund raised its forecast for global economic growth to its fastest past in seven years. The agency expects the global economy to grow by 3.9% this year and next, up from 3.7% in 2017. It expects the American economy to increase by 2.9% this year from 2.3% last year and for the euro zone to climb by 2.4%, also up from 2.3%.
In the U.S., economic reports for the past month came in mostly positive. Retail sales for March rebounded 0.6% after declining in each of the previous three months, beating the Street consensus forecast of a 0.4% rise. Most of the gain came from auto and gasoline sales; excluding those two categories, the gain was trimmed to 0.3%. The Conference Board’s index of leading economic indicators rose 0.3%, in line with forecasts although down from the prior month’s upwardly revised 0.7% jump. Industrial production rose 0.5%, also down from the prior month’s 1.0% increase but slightly ahead of estimates. Capacity utilization rose 3/10ths of a percentage point to 78.0%, its highest level in three years. Housing starts rose 1.9% to a better-than-expected annual rate of 1.319 million units, but the figure was skewed by a 16% jump in multifamily units; the much-larger single-family category fell 3.7% and permits dropped 5.5%. Not surprisingly, then, the National Association of Home Builders’ index slipped a point to 69 for April. The Federal Reserve’s Beige Book covering March and early April described the economy growing “at a modest to moderate pace” across the country. “Widespread employment growth continued,” it said, with labor markets remaining “tight, restraining job gains in some regions.”
Reports/dates/facts/links worth paying attention to over the next week:
1. April 23: Chicago Fed national activity index for March; existing home sales for March.
2. April 24: New home sales for March; S&P Corelogic Case-Shiller home price indexes for February; Conference Board consumer confidence index for April.
3. April 26: Weekly unemployment claims; durable goods orders for March.
4. April 27: First quarter GDP, first estimate; University of Michigan consumer sentiment index for April, second reading.
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