Stock Report For Week Ended April 17, 2014
Stocks rebound as investors welcome earnings surprises
Stocks recorded strong gains, nearly wiping out last week's losses as investors welcomed some better-than-expected corporate earnings reports. Many high-growth, highly valued stocks—which had seen sharp declines in previous sessions—continued to lag early in the week as investors favored larger, more stable "blue chip" companies. Such "momentum" shares rallied into the close of the week, however. Trading ended Thursday as Wall Street is closed on Friday in observance of Good Friday.
A brighter picture for bank earnings
After being disappointed in the previous week by some of the initial quarterly earnings reports, investors seemed largely cheered by the next round of figures. Earnings from two large banks surprised on the upside, helping compensate for disappointing results reported by other banks last Friday. Tech earnings were more mixed, with heavily weighted Google falling sharply after missing sales estimates. Analysts continue to expect earnings for the S&P 500 as a whole to decline roughly 1%-2% in the first quarter from the same period last year before rebounding in the second quarter.
Spring thaw seems on its way
Investors also appeared more encouraged by economic data. The Federal Reserve reported that industrial production rose solidly in March, furthering hopes that the economy would enjoy a spring thaw after a slowdown caused by unusually severe winter in much of the country. Weekly jobless claims ticked upward, but the four-week moving average fell to its lowest level since October 2007.
Better weather helps retail sales
Brighter retail sales data were another indicator that the economy's slowdown early in 2014 could be at least partially attributed to the bad weather. T. Rowe Price Chief Economist Alan Levenson notes that a strong gain in March retail sales reflects a rebound in the income of hourly workers, whose work is especially vulnerable to weather-related delays.
Fed policy likely to play smaller role in driving equity markets
Comments from Fed Chair Janet Yellen on Wednesday and Thursday were generally interpreted as dovish—or supportive of continued low interest rates—and may have also boosted stock prices as the trading week ended. Many T. Rowe Price managers believe that Fed policy will take a back seat in driving stock returns in the coming months, however. As the Fed gradually winds down its stimulus program, fundamental factors such as corporate earnings, cash flow, and jobs growth should become more important in assessing the health of individual companies and the overall economy. The transition from a liquidity-driven to a fundamentals-driven market is likely to increase the importance of careful stock selection, in our opinion.