Even though the weekend's meeting of oil leaders failed to deliver a production freeze, U.S. equities were able to overcome early losses and finish nicely higher. Meanwhile, crude oil prices pared solid losses to end modestly lower, possibly aided by reports of an oil worker strike in Kuwait, which may have limited supply concerns. Consumer discretionary stocks got a boost from upbeat results from Hasbro (NASDAQ:HAS) and a solid gain for Dow member Walt Disney (NYSE:DIS). Treasuries were lower, with a steady homebuilder sentiment report kicking off the week's housing-weighted economic calendar, while gold and the U.S. dollar lost ground.
The Dow Jones Industrial Average rose 107 points (0.6%) to 18,004, the S&P 500 Index added 14 points (0.7%) to 2,094, and the Nasdaq Composite gained 22 points to 4,960. In moderate volume, 834 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.58 to $39.78 per barrel, wholesale gasoline was $0.02 lower at $1.44 per gallon and the Bloomberg gold spot price declined $2.68 to $1,231.31 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 94.47.
Morgan Stanley (NYSE:MS $26) reported 1Q earnings-per-share (EPS) of $0.55, above the $0.46 FactSet estimate, while revenues fell 21.3% year-over-year (y/y) to $7.8 billion, versus the expected $8.0 billion. The company said 1Q was characterized by challenging market conditions and muted client activity, and against that backdrop, its businesses delivered stable results. "While we see some signs of market recovery, global uncertainties continue to weigh on investor activity," the company added. Shares pared solid early gains and were modestly lower.
PepsiCo (NYSE:PEP) (PEP $104) posted 1Q EPS ex-items of $0.89, north of the forecasted $0.81, as revenues declined 3.0% y/y to $11.9 billion, roughly in line with expectations. The company said its marketing initiatives and new product launches are generating solid organic top line growth, and its focus on driving greater efficiency throughout its operations contributed significantly to attractive core gross margin expansion. PEP reaffirmed its full-year guidance, noting that it is off to a strong start to the year. PEP was slightly higher.
Hasbro Inc. (NASDAQ:HAS $87) announced 1Q profits of $0.38 per share, well above the estimated $0.24, with revenues growing 16.0% y/y to $831 million, compared to the projected $779 million. The toy company said despite the continued negative impact from foreign exchange and challenging economic environments in some international markets, it was a good start to the year as it saw continued momentum in its business. Shares were nicely higher.
Dow member Walt Disney Co. (DIS $101) finished higher following an analyst upgrade from Pivotal Research and as the company's "The Jungle Book" movie topped the domestic box office and easily beat Boxoffice.com's forecasts over the weekend after opening on Friday.
Home builder confidence holds steady
The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month held at March's 58 level versus the Bloomberg estimate calling for an improvement to 59. However, builder confidence remained above 50, which separates good and poor conditions, for the twenty-second straight month. The NAHB said the single-family housing sector continues to recover at a slow but consistent pace, and as we enter the spring home buying season, we should see the market move forward. The NAHB added that builders remain cautiously optimistic about construction growth in 2016.
Tuesday we will get the latest look at housing construction in the form of the March housing starts and building permits report. Starts are anticipated to decline 1.0% month-over-month (m/m) to an annual rate of 1,166,000 units, while permits are projected to rise 2.0% m/m to an annual rate of 1,200,000 units.
Schwab's Chief Investment Strategist Liz Ann Sonders notes in her article, Recession: Your Time is Gonna Come … But Not Yet, although we’re unlikely to exit from a muddle-through state, the risk of recession is objectively low. She points out that that economic expansions don’t die of old age—they die of excess. One way to measure this broadly is to look at cyclical spending—which includes residential spending—as a share of potential GDP. We have only recently seen cyclical spending get back above where it bottomed historically—after which it was typically many years prior to the next recession. In advance of recessions, cyclical spending typically peaked out before rolling over and providing the recession “signal.”
Treasuries were lower, as the yield on the 2-year note ticked 1 basis point (bp) higher to 0.74%, the yield on the 10-year note rose 2 bps to 1.77%, and the 30-year bond rate gained 3 bps to 2.59%.
Europe turns higher after recovering from failed production freeze meeting, Asia lower
European equities finished modestly higher, courtesy of an advance for the basic materials sector, though oil & gas issues saw some pressure on the heels of this weekend's production meeting in Doha between OPEC and non-OPEC oil producers that failed to deliver an expected output freeze. The pressure on the energy sector was eased to help the markets recover as oil prices came well off the worst levels of the day, aided by reports of an oil worker strike that is hampering production in Kuwait, possibly taking some of the sting away from the Doha disappointment. However, economic concerns lingered as the June referendum looms regarding whether the U.K. should leave the European Union, known as Brexit.
Stocks in Asia, however, finished lower, with the failed production freeze following a weekend meeting between major oil producers pressuring crude oil prices and the energy sector, while Japanese stocks fell sharply, bogged down by some strength in the yen and as last week's earthquake was followed by a powerful second earthquake over the weekend to exacerbate sentiment and economic activity. Many manufacturers halted production in the wake of the earthquakes. Mainland Chinese stocks declined and those traded in Hong Kong Hang also fell, with energy stocks seeing pressure and real estate issues declining following a report that showed home prices strengthened in March, sparking concerns that the government may act to cool the property market, per Bloomberg. The decline in oil & gas issues pressured Australia's markets, while South Korean equities also declined. However, Indian securities bucked the trend, finishing with nice gains in its return to action following late-last week's holiday break, with a report showing wholesale price inflation came in cooler than expected.
Items set for release Tuesday internationally include: the Zew Economic Sentiment Survey from Germany, the current account from the eurozone and employment figures from Hong Kong, while the Bank of Korea will meet, with no change to its monetary policy stance expected.