U.S. stocks finished near the lows of the day to wipe out most gains for the week as widespread global equity losses accompanied festering growth concerns and a persistent decline in sovereign bond yields. Crude oil prices were lower as the U.S. dollar extended the previous day's advance. Treasuries and gold were higher, while a preliminary read on U.S. consumer sentiment came in slightly above expectations.
The Dow Jones Industrial Average (DJIA) fell 120 points (0.7%) to 17,865, the S&P 500 Index lost 19 points (0.9%) to 2,096, and the Nasdaq Composite finished 64 points (1.3%) lower at 4,895. In moderately heavy volume, 865 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil decreased $1.49 to $49.07 per barrel and wholesale gasoline declined $0.06 to $1.56 per gallon, while the Bloomberg gold spot price increased $4.74 to $1,274.55 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.7% higher at 94.58. Markets were mixed for the week, as the DJIA increased 0.3%, the S&P 500 Index decreased 0.2% and the Nasdaq Composite declined 1.0%.
Mattress Firm Holding Corp. (NASDAQ:MFRM $29) reported a 1Q loss ex-items of $0.10 per share, wider than the $0.04 per share shortfall that was projected by FactSet, on revenues of $839 million, below the estimated $867 million. 1Q same-store sales declined 1.1% y/y, compared to the expected 2.7% gain. The mattress retailer said it experienced unrelated challenges in three primary areas, but they have been resolved and are largely behind the company. MFRM lowered its full-year guidance for earnings-per-share (EPS), revenue and same-store sales, but did note that trends have returned to positive low-single digit same-store sales growth over Memorial Day and in the days since the holiday. Shares were sharply lower.
H&R Block Inc. (NYSE:HRB $24) posted 4Q EPS ex-items of $3.16, matching forecasts, with revenues declining 1.3% year-over-year (y/y) to $2.3 billion, roughly in line with estimates. HRB also raised its quarterly dividend by 10% to $0.22 per share, and said it is making strategic changes aimed at arresting its decline in clients. Shares rallied.
Consumer sentiment dips but tops forecasts
The preliminary University of Michigan Consumer Sentiment Index dipped to 94.3 this month from May's 11-month-high of 94.7, and compared to the Bloomberg estimate of a decline to 94.0. The economic conditions component of the survey improved, while the outlook portion declined. The 1-year inflation outlook held at 2.4%, though the 5-10 year inflation estimate declined to 2.3% from 2.5%.
Treasuries were higher, with the yields on the 2-year note and the 30-year bond decreasing 3 basis points (bps) to 0.73% and 2.46%, respectively, while the yield on the 10-year note dropped 5 bps to 1.64%. Bond yields have shown some downside volatility as of late with recent data and Monday's speech from Fed Chairwoman Janet Yellen dampening summer rate hike expectations, along with the recent flare-up in global growth concerns.
Financials lead European losses, Asia finishes the week out on a sour note
European equities traded broadly lower, posting a third-straight down session. Financials led the decline as dampened Fed rate hike expectations and flared-up global growth concerns buoyed the U.S. dollar—to exacerbate pressure on oil and commodity prices—and depressed global interest rates. Also, the global markets appeared cautious ahead of next week's key monetary policy decisions out of the U.S., Japan, and the U.K., while the June 23 referendum looms on whether the U.K. will leave the European Union (EU), known as a Brexit. The euro declined and the British pound fell versus the U.S. dollar. Bond yields in the region were mixed, though the continued fall for the yield on the German 10-year bond raised some concerns. In economic news, French industrial and manufacturing output in April rose much more than expected, along with U.K. construction output.
Stocks in Asia finished lower to close out the week amid the recent flare-up in global growth uneasiness ahead of next week's key monetary policy decisions, including from the Bank of Japan (BoJ). The U.S. dollar has firmed as of late to exacerbate the pressure on oil and commodity prices, as well as emerging markets. Oil and gas, basic materials and financials were some of the biggest decliners in the region, which led to a decline for Australian equities. Japanese stocks decreased, with financials being bogged down by the nation's 10-year government bond yield falling to a record low of -0.155%, per Bloomberg, ahead of the BoJ's decision. Indian securities traded to the downside, ahead of a read on the country's industrial production. After the closing bell, India's industrial production unexpectedly fell for April. China is expected to deliver key lending statistics over the weekend, which will be followed by next week's reports on industrial production, retail sales and property prices. Mainland Chinese markets remained closed for a holiday, while trading in Hong Kong reopened after yesterday's holiday closure, though stocks were lower. Finally, South Korean equities finished lower.
Mixed week as uncertainty remains
With data on the lighter side, the markets had little help to determine if last week's severe miss for May U.S. nonfarm payroll growth was an anomaly. This likely contributed to the late-week flare-up in global growth concerns, along with a cut growth outlook from the World Bank, and more lackluster economic reports out of China and Japan. The global markets appeared cautious ahead of a plethora of monetary policy decisions, while polls continued to foster uncertainty regarding a U.K. Brexit. However, U.S. stocks finished mixed as the late-week stumble was preceded by the continued march higher for crude oil prices and a speech from Federal Reserve Chairwoman Janet Yellen, who omitted a time frame for a next hike only to counter this with a relatively upbeat assessment of the domestic economy. Financials were the biggest drags on the week as lower global interest rates weighed on the sector, while energy issues were standout winners as crude oil prices enjoyed some time north of the $50 per barrel mark.
Stocks moving nowhere for over a year, and a continued low yield environment is fueling investor frustration. There doesn’t appear to be a lot of impetus for that to change soon, but investors should remain patient as positive signs are emerging. For the frustration to end, we believe businesses need to pick up their capital spending. For now, a relatively healthy consumer and housing are keeping the U.S. economy afloat and making it possible that we’ll see a Fed hike this summer. The discontent in the U.K. has led to an upcoming vote on whether to leave the European Union or not. We believe they’ll stay, but there are risks, and unfortunately stocks likely won’t rally on a vote to remain, but could slide on a vote to leave.
Data and Fed set collide next week
Next week's economic docket will heat back up, with key releases of retail sales, the Consumer Price Index (CPI), the Producer Price Index (PPI), industrial production and capacity utilization, along with housing starts and building permits. However, the headlining event is poised to be Wednesday's monetary policy decision from the Federal Open Market Committee (FOMC). Although June rate hike expectations were taken off the table by last week's severely disappointing labor report and this week's speech from Fed Chair Yellen, the markets will be paying close attention to the FOMC's updated economic projections and Yellen's press conference shortly after the decision. The latest U.S. employment report, and some of its accompanying components that suggested some worrisome labor market trends, may well be another bump in the road toward higher rates. While an increase in July isn't off the table, the likelihood of a rate hike has been reduced.
Other notable reports on next week's economic calendar include: the NFIB Small Business Optimism Index, June New York and Philly regional manufacturing data, and the NAHB Housing Market Index.
International reports slated for next week include: Australia—employment change. China—industrial production and retail sales. India—industrial production and the CPI. Japan—Bank of Japan monetary policy decision. Eurozone—industrial production, trade balance, 1Q employment, new car registrations and the CPI. U.K.—Bank of England monetary policy meeting, retail sales, CPI and employment change.