Most stock indexes were flat or down for the week; technology eked out a slight gain. Markets dipped on Thursday as participants reacted to disappointing U.S. manufacturing data; also to the Federal Reserve’s decision to stand pat on interest rates, which undermined hopes for a rate cut later this year. Markets regained most, but not all, lost ground on Friday as S&P 500 earnings growth turned positive and jobs growth came in strong.
Oil prices fell on reports of a U.S. inventory buildup. Gold prices also declined and bonds were mixed. The yield on the ten year U.S. Treasury rose to about 2.53%. The U.S. dollar fell against a basket of major currencies.
With 78% of S&P 500 companies reporting first-quarter results, 76% have exceeded earnings per share expectations and 58% have beaten revenue expectations. As of May 3, 2019, Refinitiv estimated the S&P 500 index’s first-quarter earnings growth rate at 0.9% and its 12-month forward P/E ratio at 17.0. Apple, General Electric and Qualcomm impressed this week; whereas Alphabet, Eli Lilly and Company and Pitney Bowes Inc. disappointed.
U.S. nonfarm payrolls rose by 263,000 in April; March was reduced to 189,000 and February increased to 56,000. The unemployment rate dropped to 3.6%, its lowest level in 50 years — partly because the labor force shrank by 500,000. Average hourly earnings rose 0.2% and the average workweek fell to 34.4 hours.
U.S. productivity rose at a 3.6% annual rate in 1Q19, notably higher than the 2.2% forecast. Unit labor costs increased just 0.1% YoY.
ISM manufacturing recorded 52.8 in April, which while expansionary, was its lowest since October 2016. Chicago PMI fell to 52.6 in April from 58.7 in March, its lowest point since January 2017.
Core PCE inflation, the Fed’s preferred measure, rose 0.05% in April, resulting in a YoY increase of only 1.6%.
As expected, at its April–May meeting the Federal Open Market Committee (FOMC) voted unanimously to hold the Fed funds rate steady in the 2.25–2.50% range. The press release acknowledged the solid economic backdrop and weaker inflation, reiterating that the Fed will remain “patient.”