U.S. stocks fell Friday on the last trading day of the month, as one of the busiest weeks of the first quarter earnings reporting season came to a close, with investors weighing blockbuster results from most large technology companies and good economic data, while keeping one eye on expectations that strong data may cause the Federal Reserve to ease back on monetary policy sooner than it expects.

What did major benchmarks do?
  • The Dow Jones Industrial Average DJIA fell 185.51 points, or 0.5%, to 33,874.85, and notched a weekly decline of 0.5%, but is up 10.68% year to date.
  • The S&P 500 SPX lost 30.30 points, or 0.7%, to close at 4,181.17, ending the week virtually unchanged, but is up 11.32% year to date.
  • The Nasdaq Composite COMP slid 119.86 points, or 0.9%, to settle at 13,962.68, leaving it with a weekly loss of 0.4% but is up 8.34% year to date.

On Thursday, the S&P 500 posted a record close, rising 0.7%, while the Dow advanced 239.98 points, or 0.7%, and the Nasdaq Composite trailed behind, eking out a gain of 0.2%. The benchmarks still notched substantial monthly gains: the Dow added 2.4%, the S&P 500 gained 5.6%, and the Nasdaq jumped 7%.

What drove the market?

Investors sifted through earnings, including blockbuster results from Amazon.com and disappointing user numbers from Twitter Inc. The past week’s earnings deluge included largely positive results from the world’s largest technology companies.

With just over a half of S&P 500 index companies reporting earnings for the quarter so far, about 87% beat market expectations, the highest level in recent years, according to Refinitiv.

“A key message from many of these tech firms is that the world is moving again, with businesses investing in areas like technology and advertising, and consumers spending,” said Russ Mould, investment director at AJ Bell, in a note. “This is fine for now but come summer and the market will be looking into 2022 and beyond and thinking more seriously about interest rate hikes following the economic recovery. That threatens to test investors’ optimism,” he said.

“The primary trend remains higher but the tug of war continues between improving economic data and earnings, and the threat of higher interest rates and higher taxes,” said Keith Lerner, chief market strategist for Truist Advisory Services. “What happens if we get a couple of months of a million jobs?”

“There’s a scenario where you could see higher taxes, even if less onerous than what’s being talked about now, even as the Fed starts to taper,” Lerner said in an interview with MarketWatch. “We are still positive for now but markets move on the margin. The fiscal spending boost is spread over many years whereas tax increases are more immediate. The risk-reward becomes a little less favorable.”

Indeed, on Friday, Dallas Fed President Robert Kaplan said Friday that he believes it’s time to discuss tapering the central bank’s asset purchases.

Analysts said signs of weaker manufacturing and services activity in China and recession in Europe contributed to a softer tone Friday.

China’s official manufacturing purchasing managers index declined to 51.1 in April from 51.9 in March, according to data released Friday by the National Bureau of Statistics. And the eurozone economy shrank at the beginning of 2021 for the second consecutive quarter, entering its second technical recession in a year. The dip wasn’t a surprise due to the pandemic, with growth expected to rebound as European countries get a better grip on vaccine distribution.

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However, U.S. personal income jumped by 21.1% in March, after a 7.1% fall in February, while spending surged 4.2%. A core reading of personal consumption and expenditure, or PCE, inflation rose 0.4% in March for a 1.8% year-over-year rise. The employment cost index showed that wages rose 1% in the first quarter and 2.7% over the past year.

The University of Michigan said its consumer sentiment index rose to 88.3 this month from a preliminary 86.5 reading, its highest since the start of the pandemic.

Which companies were in focus?
  • Amazon.com Inc. AMZN shares slipped 0.1% after the company late Thursday announced a second consecutive quarter of more than $100 billion in sales and predicted a third on the way.
  • European Union regulators accused Apple Inc. AAPL of abusing its dominant position in the music-streaming market by imposing restrictive rules on the App Store. Shares closed down 1.5%.
  • Shares of Twitter Inc. TWTR tumbled more than 15% after the social-media platform reported increased quarterly revenue on the strength of ad sales, but saw its user numbers fall short of expectations.
  • U.S. Steel Corp. X reported sales slightly below expectations and swung to a GAAP profit. The steelmaker’s shares were up 2.3%.
  • KLA Corp. KLAC shares were down 3.4%, after the low end of the company’s earnings outlook range fell short of Wall Street’s average estimate even though results for the quarter beat expectations. The company makes the instruments that foundries use to fabricate the silicon wafers that are manufactured into chips.
  • Chevron Corp. CVX shares fell 3.6% after the oil and gas giant on Friday reported a first-quarter profit that topped expectations but revenue that came up short, amid continued weakness in downstream volume and margin due to the COVID-19 pandemic and Winter Storm Uri.
  • Exxon Mobil Corp. XOM shares closed 2.8% lower after the oil giant on Friday reported a first-quarter adjusted profit and revenue that beat Wall Steet expectations, boosted by higher commodity prices and actions to cut costs.
  • General Electric Co. GE disclosed Friday that it sold off more of the Baker Hughes Co. BKR shares it owned, likely raising nearly $1 billion. GE shares were down 0.7%, while Baker Hughes shares lost 2.2%.
  • Shares of Goodyear Tire & Rubber Co. GT  dropped 3% Friday, reversing an earlier intraday gain, after its earnings beat expectations, but management more than doubled the company’s full-year outlook for raw materials cost increases.
What did other markets do?
  • The yield on the 10-year Treasury note BX:TMUBMUSD10Y was down nearly 1 basis point at 1.635%. Yields and bond prices move in opposite directions.
  • The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, rose 0.8% to 91.29.
  • Oil futures were under pressure on expectations of lower global demand, with the U.S. benchmark CL00 West Texas Intermediate crude for June delivery falling $1.43, or 2.2%, to settle at $63.58 a barrel.
  • Gold futures GC00 for June GCM21 fell 60 cents, or 0.03%, to settle at $1,767.70 an ounce, notching its first monthly gain all year.
  • The Stoxx Europe 600 XX:SXXP closed 0.3% lower, while London’s FTSE 100 UK:UKX ended with a 0.1% gain. The Hang Seng Index HK:HSI fell 2% in Hong Kong, while the Shanghai Composite CN:SHCOMP and Japan’s Nikkei 225 JP:NIK each fell 0..8%.

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