EmailAfter a weak start to April, the stock market certainly got back on track last week with the S&P 500 gaining 2.3% and establishing new record highs in the process. The advance put the market back on track for what is often a winning month in April.
This week, however, looks poised to begin on a downward note at the start of trading. The S&P futures are trading 0.5% below fair value, dragged down by weakness in overseas markets that followed China's weaker-than-expected Q1 GDP report.
Last night, China revealed Q1 GDP rose 7.7% year-over-year, which marked a deceleration from the 7.9% growth rate seen in the fourth quarter. The disappointing report triggered a cascade of selling interest in the commodity space, which was already reeling from big losses on Friday in the metals and energy complexes. The scope of the selling activity had the semblance of a liquidation trade as investors raced each other to the exit.
Gold futures are down $75.90 today, or 5.1%, to $1425.50/troy ounce. Gold futures have plunged roughly 10% since their highs last Thursday.
Crude futures are down 1.6% to $89.83 per barrel, which is actually an improvement from earlier this morning when they flirted with $88.00 per barrel. Separately, copper futures are down 3.0% to $3.25 per pound.
The weakness in the commodities is expected to weigh on the basic materials sector, which paced losses in overseas markets.
Thus far, the US market looks to be tolerating the commodity selloff relatively well. A better-than-expected earnings report from Citigroup (C), which topped the Capital IQ consensus estimate by $0.13, and a $25.5 bln cash and stock bid by DISH Network (DISH) for Sprint Nextel (S) have provided some supportive distractions.
In turn, there is probably an appreciation for the fact that lower commodity prices will bode well for the earnings prospects for many companies. That doesn't filter through immediately, but if prices stay down or move lower still, airlines for instance will get a boost from lower fuel costs while car makers and homebuilders will benefit from lower copper costs.
This is going to be a busy weak of earnings reporting with approximately 15% of the S&P 500 due to report their results. The financial and technology sectors will factor prominently in this week's reporting.
Things won't be as active on the economic reporting front, although some influential reports are in the mix with CPI, Housing Starts, Industrial Production, and Initial Claims slated to be released during the week.
The Empire Manufacturing Index was released earlier this morning and it continued a string of recent economic reports that have revealed a softening in economic activity in the March-April period. Specifically, the Empire Manufacturing Index for April slipped to 3.1 (Briefing.com consensus 5.0) from 9.2 in March. A number above zero indicates expansion, so the April reports shows business is still growing in the Empire manufacturing region, only at a slower rate than before.
