U.S. equities notched a second day of solid losses as a motley batch of earnings and economic reports have opened the door for uncertainty to return. CBS and Time Warner posted upbeat results, and a couple of reads on domestic services sector activity showed an acceleration of activity. However, private sector payrolls, as measured by ADP, were lower than expected, upping jitters ahead of Friday's key April nonfarm payroll report. Treasuries finished higher, along with the U.S. dollar, while gold was lower and crude oil prices were mixed.
The Dow Jones Industrial Average (DJIA) fell 100 points (0.6%) to 17,651, the S&P 500 Index declined 12 points (0.6%) to 2,051, and the Nasdaq Composite dropped 38 points (0.8%) to 4,726. In heavy volume, 1.0 billion shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.13 higher to $43.78 per barrel, wholesale gasoline was $0.02 lower at $1.49 per gallon, and the Bloomberg gold spot price declined $6.59 to $1,279.91 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 93.22.
CBS Corp. (NYSE:CBS $57) reported 1Q earnings-per-share (EPS) ex-items of $1.02, above the $0.94 FactSet estimate, as revenues rose 10.0% year-over-year (y/y) to $3.9 billion, above the projected $3.8 billion. The company said advertising revenues were "extremely strong," jumping 31.0% overall compared to last year. Shares traded nicely higher.
Time Warner Inc. (NYSE:TWX $75) posted 1Q EPS ex-items of $1.49, versus the expected $1.29, with revenues increasing 3.0% y/y to $7.3 billion, roughly in line with forecasts. TWX reaffirmed its full-year profit outlook. The company said it saw revenue growth at Turner and Home Box Office, partially offset by a decline at Warner Bros. TWX finished higher.
Priceline.com Incorporated (NASDAQ:PCLN). (PCLN $1,253) achieved 1Q earnings of $10.54 per share, above the estimated $9.64, as revenues rose 16.7% y/y to $2.1 billion, roughly in line with forecasts. The travel booking site issued softer-than-expected 2Q guidance and shares were sharply lower.
Humana Inc. (NYSE:HUM $176) reported 1Q profits ex-items of $1.86 per share, above the expected $1.81, with revenues dipping 0.2% y/y to $13.8 billion, compared to the anticipated $13.7 billion. HUM issued 2Q EPS guidance that missed forecasts, while reaffirming its full-year profit outlook. Shares were lower.
Services sector growth accelerates more than expected, ADP private sector job report misses
The Institute for Supply Management (ISM) non-Manufacturing Index (chart) rose to 55.7 in April—the highest level this year—from 54.5 in March, and compared to the Bloomberg forecast of a modest rise to 54.8. Growth in new orders and employment both accelerated, along with prices, while business activity/production decelerated but remained firmly in expansion territory. The ISM said comments from the survey reflect optimism about the business climate and the direction of the economy.
The final Markit U.S. Services PMI Index was revised to 52.8 in April from the preliminary level of 52.1, where economists had expected it to remain, and up from the 51.3 reading registered in March. The release is independent and differs from ISM's report, as it has less historic value and Markit weights its index components differently.
Factory orders (chart) grew 1.1% month-over-month (m/m) in March, north of expectations of a 0.6% increase, while February was adjusted negatively to a 1.9% drop. March durable goods orders—preliminarily reported a week ago—were unrevised at a 0.8% gain.
The ADP Employment Change Report showed private sector payrolls rose by 156,000 jobs in April, versus forecasts of a 195,000 increase and March's downwardly revised gain of 194,000 jobs. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday's broader April nonfarm payroll report, expected to show an increase of 200,000 jobs, while private sector payrolls are expected to rise of 196,000. The unemployment rate is forecasted to dip to 4.9% from 5.0% and average hourly earnings are projected to rise 0.3% month-over-month (m/m).
The trade balance showed that the deficit shrank to $40.4 billion in March, compared to the $41.2 billion estimate. February's deficit was downwardly revised to $47.0 billion. Exports declined 0.9% m/m to $176.6 billion, and imports fell 3.6% m/m to $217.0 billion.
Preliminary 1Q nonfarm productivity declined 1.0% on an annualized basis, versus expectations of a 1.3% drop, following the downwardly revised 1.7% fall seen in the 4Q. However, unit labor costs rose 4.1%, versus the forecast calling for a 3.3% increase. Unit labor costs were revised lower to a rise of 2.7% in 4Q.
The MBA Mortgage Application Index decreased 3.4% last week, after dropping 4.1% in the previous week. The fall came as a 5.5% drop for the Refinance Index was met with a 0.1% dip for the Purchase Index. The average 30-year mortgage rate rose 2 basis points (bps) to 3.87%.
Treasuries finished higher, as the yields on the 2-Year and the 10-Year notes, as well as the 30-Year bond, fell 2 bps to 0.74%, 1.78% and 2.64%, respectively. .
The only report on tomorrow's economic docket is weekly initial jobless claims, with economists forecasting a slight uptick to a level of 260,000 from the prior week's 257,000.
Europe, Asia lower amid turn in global sentiment
European equities finished lower, with traders digesting some mixed earnings reports and as basic materials stocks saw pressure on the continued soured global sentiment. In economic news, the final Markit Eurozone Composite PMI Index—a gauge of business activity in both the services and manufacturing sectors—was unrevised at 53.0 for April, as expected, and compared to the 53.1 level posted in March. A reading above 50 denotes expansion. The euro dipped versus the U.S. dollar, while bond yields in the region finished mixed. Further east, stocks in Asia finished mostly lower following yesterday's slide in the global markets as sentiment has soured amid some disappointing economic data, a surging yen, and global monetary policy uncertainty. However, volume was lighter than usual as markets in Japan remained closed for the second day of a three-day holiday break. Australia's market fell solidly, giving back some of yesterday's rally that came from the unexpected rate cut from the Reserve Bank of Australia, while securities traded in mainland China, Hong Kong, South Korea and India's all finished lower
The international economic calendar for tomorrow will be light, with items slated for release to include retail sales and trade data from Australia and CPI from the U.K.
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