Stock Report For Week Ended April 17, 2015
Stocks fall on overseas worries
A sharp decline driven largely by events overseas on Friday left U.S. stocks lower for the week, but not before the large-cap benchmarks climbed near their all-time highs at midweek. The small-cap Russell 2000 Index, which is typically more insulated from overseas markets, fared somewhat better and managed to establish a record close on Wednesday before falling back. Volumes increased somewhat as traders reacted to both the developments abroad and the first full week of significant first-quarter earnings reports.
Early earnings reports not as bad as feared
Some positive—at least, better than expected—earnings reports appeared to push markets higher early in the week. As always, results were not uniform, but a pattern seemed to be emerging that profits had not declined quite as much as feared. By Friday, analytics and data firm FactSet was calculating that earnings in the S&P 500 had declined by 4.1% in the quarter—the first quarterly drop since late 2012 but somewhat better than earlier estimates.
Oil stocks rise on belated evidence of supply response
The plunge in energy sector profits was a primary culprit in the earnings dip, but better news on this front helped drive energy stocks higher and may have bolstered overall sentiment. Energy stocks and oil prices surged on Tuesday and Wednesday, supported by news of a decline in North Dakota oil production. While producers have cut back on unproductive drilling operations, U.S. supply had continued to grow stubbornly, and traders were encouraged to finally see evidence of a market response to last year's dramatic decline in crude prices.
Greece exit worries send global markets lower to end week
The strong U.S. dollar has also weighed on U.S. multinationals' profits, perhaps making sentiment particularly sensitive to global growth and financial concerns. Bad news on this front derailed the markets on Friday as global markets reacted to new Chinese trading regulations, and as speculation grew that Greece would be unable to make scheduled payments on its bailout loan. The news heightened speculation that Greece might default on its debt and abandon the shared European currency.
"Grexit" may already be partially reflected in stock prices
T. Rowe Price equity and sovereign credit analysts in Europe acknowledge that the potential for Greece to leave the eurozone has increased, although it is far from clear that such an event will occur. If Greece does exit, it is likely to increase volatility in markets, but the possibility of such an event has been telegraphed for some time now and is unlikely to catch investors by surprise.
European economy and firms generally on more solid footing
T. Rowe Price's London-based equity team notes that Europe's economic recovery appears to have gained momentum in recent months. European companies have continued to meaningfully restructure, reduce costs, and improve their market positions, and our analysts believe that many companies will experience significant operating leverage as the gradual recovery in Europe continues. In addition, a weaker euro versus the dollar is likely to lift eurozone exports.