The drama surrounding Washington has finally caught up to the U.S. equity markets, as the political turmoil pressured stocks in a spike of volatility. Treasuries were sharply higher amid the uncertainty and gold prices soared, while crude oil prices gained ground after the sixth-straight weekly drop in government oil inventories, and the U.S. dollar was modestly lower. News on the equity front was a mixed bag, highlighted by Target's quarterly results and the continued legal wrestling match between Apple and Qualcomm (NASDAQ:QCOM).
The Dow Jones Industrial Average (DJIA) tumbled 373 points (1.8%) to 20,607, the S&P 500 Index lost 43 points (1.8%) to 2,357, and the NASDAQ Composite plunged 159 points (2.5%) to 6,011. In heavy volume, 991 million shares were traded on the NYSE and 2.3 billion shares changed hands on the NASDAQ. WTI crude oil rose $0.41 to $49.07 per barrel and wholesale gasoline was unchanged at $1.60 per gallon. Elsewhere, the Bloomberg gold spot price jumped $22.99 higher to $1,260.23 per ounce, and the dollar index, a comparison of the U.S. dollar to six major world currencies, was 0.1% lower at 97.51.
Target Corp. (NYSE:TGT $55) reported Q1 earnings-per-share (EPS) of $1.22, or $1.21 ex-items, versus the $0.91 FactSet estimate, as revenues declined 1.1% year-over-year (y/y) to $16.0 billion, compared to the projected $15.7 billion. Q1 same-store sales declined 1.3% y/y, compared to the forecasted 3.7% decrease. TGT issued Q2 EPS guidance that had a midpoint above expectations, while reaffirming its full-year same-store sales outlook and noting that its better-than-expected Q1 performance raises the probability that its current year profits will be above the midpoint of its prior forecast. Shares were nicely higher.
The legal battel between Dow member Apple Inc. (NASDAQ:AAPL $150) and Qualcomm Incorp. (NASDAQ:QCOM $55) is escalating after Qualcomm announced that it is filing a breach of contract complaint against the manufacturers of Apple's iPhone and iPad for refusing to pay for use of its licensed technologies. The complaint comes as Qualcomm said the manufacturers now are refusing to pay royalties on the Apple products they produce, saying that they must follow Apple's instructions not to pay. The four manufacturers are Hon Hai Precision Industry Co. Ltd. (HNHPF $7), also known as Foxconn, Pegatron Corp., Wistron Corp., and Compal Electronics Inc. AAPL and QCOM were lower.
Urban Outfitters Inc. (NASDAQ:URBN $20) was lower after posting Q1 EPS of $0.10, below the projected $0.16, as revenues were flat y/y at $761 million, south of the expected $770 million. Q1 same-store sales declined 3.1% y/y, versus the forecasted 2.3% decrease.
Advanced Micro Devices Inc. (NASDAQ:AMD) $11) gave back some of yesterday's rally that came courtesy of unconfirmed reports that the company has a licensing deal for its graphic chips with Dow member Intel Corp. (NASDAQ:INTC $35). Analysts are expressing skepticism regarding the deal and are digesting the company's long-term forecasts delivered at yesterday's investor day.
Mortgage applications drop
The MBA Mortgage Application Index fell 4.1% last week, following the previous week's 2.4% gain. The drop came as a 5.7% decrease for the Refinance Index was met with a 2.7% decline for the Purchase Index. The average 30-year mortgage rate remained at 4.23%.
Treasuries finished noticeably higher, as the yield on the 2-Year note declined 6 basis points (bps) to 1.24%, the yield on the 10-Year note fell 11 bps to 2.22%, and the 30-Year bond rate dropped 10 bps to 2.90%.
The domestic economic calendar will close out the week tomorrow with the release of weekly initial jobless claims, forecasted to tick higher to a level of 240,000 from the prior week's 236,000, as well as the Philly Fed Manufacturing Index, expected to move slightly lower to 18.5 for May from the 20.0 posted in April, with a number above zero indicating expansion in activity. Rounding out the day will be the Index of Leading Economic Indicators (LEI), with economists anticipating a 0.4% m/m rise in April, matching that seen in March.
Europe and Asia lower as U.S. political concerns fester
European equities finished broadly lower, with the euro and British pound gaining ground amid the continued drop in the U.S. dollar as the global markets grappled with heightened political risk concerns in the U.S. In economic news, eurozone core consumer price inflation was unrevised at a 1.2% y/y increase, as expected, and the region's construction output declined, while the U.K. employment change rose much more than expected. Bond yields in the region moved lower. The heightened political uncertainty in the U.S. comes as elections loom in the U.K., Germany and Italy, while Brexit negotiations continue.
Stocks in Asia finished mostly lower following some mixed earnings and economic data, while exacerbated political uncertainty in the U.S. dampened sentiment. Japanese equities declined, with the yen gaining ground as the U.S. dollar continued to fall, while reports showed the nation's machine orders—a gauge of capital spending—rose at a smaller amount than expected and industrial production declined for March.
Mainland Chinese stocks and those traded in Hong Kong fell, with recent optimism regarding increased infrastructure spending by the government fading, and concerns about heightened regulatory crackdowns and recent soft economic data lingering.
Markets in Australia tumbled, as strength in basic materials was more than offset by weakness in technology and financials, while a report showed consumer confidence in the nation declined. Finally, South Korean securities dipped, while listings in India bucked the trend to finish higher, bolstered by some upbeat earnings reports in the nation.
Tomorrow's international economic calendar will include employment data from Australia, GDP from Japan, and retail sales from the U.K.