* U.S. indexes up, led by Nasdaq
* All major S&P 500 sectors green: energy, tech lead
* Euro STOXX 600 index ends up ~1.2%
* Dollar falls; gold, crude gain; Bitcoin back over $51k
* U.S. 10-Year Treasury yield ~1.65%
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IN THE FINAL STRETCH OF EARNINGS, IT'S RETAILERS (1315
In the final stretch of the first-quarter earnings season
investors will hear from a host or retailers, with companies
including Walmart, Home Depot and Target,
all due to report next week.
If the current trend holds, they won't disappoint.
"EPS has been quite strong for Consumer Discretionary
Retailers, with projected growth of 167% for the group,
including 254% for Softline, 186% for Internet, and 67% for
Hardline," wrote Jonathan Golub, chief U.S. equity strategist &
head of quantitative research at Credit Suisse Securities, in a
"Thus far, Retailers have surpassed expectations by 48%," he
S&P 500 companies overall are on track to show a 51%
year-over-year gain in earnings for the first quarter, according
to data from Refinitiv.
That's based on results from 457 of the 500 companies and
estimates for the rest, with the percentage of reports beating
earnings expectations at 87.1% as of Friday - the highest on
record, based on Refinitiv's data going back to 1994.
TIPS FOR INVESTING IN A 'HOT VAX SUMMER' (1221 EDT/1621 GMT)
With Americans ditching their face masks as the pandemic
recedes, we could see a "hot vax summer", accompanied by a cool
period in the stock market, Ally Invest Senior Investment
Strategist Callie Cox says in a note on Friday.
With the "sell in May and go away" time between Memorial Day
at the end of May and Labor day in September historically weak
for the U.S. stock market, Cox has some suggestions for
She says the S&P 500 since 1990 has risen an average
of 0.9% between Memorial Day and Labor Day, compared to a 3.6%
gain in the months ahead of Labor Day and a 4.2% gain in the
months following Labor Day. However, in recent years, markets
have bucked that trend, with the S&P 500 last year surging 16%
over the summer.
To weather the next few months, Cox suggests investors
resist recency bias: Just because the market has mostly done
well in recent months doesn't mean it will continue to. Always
be ready for a shock.
Cox recommends investors have some cash ready to take
advantage in case markets drop, and she advises long-term
investors to overcome the fear of buying during a selloff.
"Pullbacks are your best friend when you're planning to keep
your money invested for several years. And in a strong economy
like we’re seeing right now, there may be an even better
argument for buying the dips," Cox writes.
BULLS SCATTER (1123 EDT/1523 GMT)
Optimism among individual investors about the short-term
direction of the stock market fell to its lowest level since
October 2020 in the latest American Association of Individual
Investors (AAII) Sentiment Survey. Pessimism and neutral
sentiment both rose.
AAII reported that bullish sentiment, or expectations that
stock prices will rise over the next six months, plunged 7.8
percentage points to 36.5%. Bullish sentiment was last lower on
October 28, 2020 (35.3%). Optimism is below its historical
average of 38.0% for the first time in 14 weeks.
Bearish sentiment, gained 3.8 percentage points to 27.0%.
Pessimism was last higher on February 3, 2021 (35.6%). Even with
this week’s increase, bearish sentiment remains below its
historical average of 30.5% for the 14th time this year.
Neutral sentiment, increased 4.0 percentage points to 36.5%.
Neutral sentiment was last higher on January 8, 2020 (37.0%).
Neutral sentiment remains above its historical average of 31.5%
for the third consecutive week and the fourth time this year.
According to AAII, "the return to normalcy from the
coronavirus pandemic, monetary and fiscal stimulus and
inflationary pressures are influencing individual investors’
outlook for stocks." Other factors AAII noted include
initiatives from the Biden administration, earnings, and
With these changes, the bull-bear spread fell to +9.5 from
+21.2 last week:
FRIDAY DATA: CONSUMERS PRESS 'PAUSE,' INFLATION HITS
'FAST-FORWARD' (1048 EDT/1448 GMT)
A data dam burst on Friday, unleashing a flood of indicators
that suggested that while the demand boom might have taken a
breather, inflation most certainly hasn't.
Receipts at U.S. retailers in April were
unchanged in March according to the Commerce Department, falling
short of the 1% gain analysts expected.
While this follows March's upwardly-revised 10.7% surge, it
does suggest that the stimulus-fueled spending spree could be
running out of gas.
But with COVID-related restrictions lifting and wallets
flush with savings, many see retail sales only momentarily
"Retail sales cooled in April, with a flat reading, as the
sugar rush from generous fiscal transfers, rapid vaccinations
and warmer weather faded," writes Gregory Daco, chief U.S.
economist at Oxford Economics (OE). "But don't be fooled,
stronger consumer spending activity lies ahead as US households
have the means and the motivation to spend freely."
Core retail sales, the metric most closely associated with
the consumer expenditures component of GDP, fell a disappointing
1.5%, much worse then the 0.2% consensus drop expected.
The core measure strips out autos, gasoline, building
materials and food services:
Speaking of which, the outlook of the U.S. consumer - who
does the economy's heaviest lifting at 70% of GDP - surprised
economists by turning sharply more pessimistic this month due to
rising inflation anxiety, according to the University of
UMich's preliminary consumer sentiment index for May
came in at 82.8, a surprise drop from 88.3 in
Analysts expected consumer mood to brighten to the 90.4
Current conditions and short-term expectations were both
sharply lower as worries over near- and medium-term inflation
"Consumer confidence in early May tumbled due to higher
inflation - the highest expected year-ahead inflation rate as
well as the highest long term inflation rate in the past
decade," notes Richard Curtin, chief economist at UMich's
Surveys of Consumers. "Rising inflation also meant that real
income expectations were the weakest in five years."
Those higher inflation expectations were substantiated by
the Labor Department, which said the prices Americans pay for
imported goods grew more than expected last month,
jumping to a 10.6% annual growth rate.
The report provided a clearer picture of the extent of
spiking inflation driven by the collision between robust demand
and scarcity of supply/hobbled supply chains.
"Import prices continued to climb in April, recording the
strongest year-on-year advance in a decade," says Kathy
Bostjancic, chief U.S. financial economist at OE. "However, the
acceleration in import inflation should be temporary and trend
lower in the second half of the year."
The inflation specter has haunted markets this week, with
some participants wondering just how "transitory" the current
inflationary picture is going to be, despite Fed reassurances.
The chart below shows how major U.S. indicators stack up
against the Fed's favorite inflation yardstick - core PCE -
along with the central bank's average annual 2% target:
A report from the Federal Reserve showed industrial output
edged up 0.7% in April, undershooting the projected
1% advance and decelerating from March's 1.04% print.
A 4.3% drop in autos, likely attributable to a widespread
microchip shortage, held the headline number down.
"In part, this softening (is) likely due to the chip
shortage, but it's hard to quantify" says Ian Shepherdson, chief
economist at Pantheon Macroeconomics. "The fundamentals for
manufacturing remain very positive, though demand growth seems
to have peaked."
Capacity utilization, a barometer of economic
slack, inched 0.5 percentage points higher to a reading of
74.9%. In context, while capacity remains below the 76.9%
pre-pandemic level, it has recovered substantial ground from the
year-ago nadir of 64.2%.
Finally, goods in stock rooms at U.S. businesses
grew by 0.3% in March, a slowdown from February's
0.6% growth, but inline with expectations.
Investors' moods are sunnier than the consumer's in morning
But while all three major U.S. stock indexes are sharply
higher, they are all on course to ride out a whipsaw week lower
than last Friday's close.
SCREENS BROADLY GREEN (1001 EDT/1401 GMT)
Major U.S. indexes are enjoying a bit of reprieve from
recent weakness, attempting to rise for a second straight day.
With this, screens are broadly green early in the session
with the Nasdaq Composite out front with a gain of more
than 1%. All major S&P 500 sectors are higher with energy
and tech leading.
The NYSE FANG+TM Index is also up more than 1%.
This as it continues to respect important levels on the charts.
At one point Thursday, this index of high-profile
tech titans was down more than 17% from its February record
So far, however, support at its March lows in the 6095/6086
area, is containing weakness. That said, NYFANG was also higher
early Thursday, but it still ended in the red. Thus, it remains
to be seen if today's bounce can hold. Breaking its March lows
can suggest its bearish trend may be about to turn more severe.
Meanwhile, Preliminary U Mich Sentiment for May missed
expectations. Although, inflation expectations components appear
robust. With this, the U.S. 10-Year Treasury yield
has deflated to around 1.64%.
Here is where markets stand in early trade:
NASDAQ COMPOSITE: RIPE FOR RELIEF (0900 EDT/1300 GMT)
The Nasdaq Composite sold off nearly 9% from its
April 29 intraday record high into its low on Wednesday in just
9 trading days.
As a result, a daily momentum study hit its most oversold
reading since March 2020. Indeed, with the tech-laden index
potentially ripe for relief, it was then able to end a 3-day
losing streak on Thursday.
Now on Friday, CME e-mini Nasdaq 100 futures are
suggesting the Nasdaq 100 is poised for further bounce at
the open. However, it remains to be seen if strength will have
legs, or whether it will just prove to be a shorter-term
oversold reaction prior to a resumption of a developing bearish
Indeed, the Composite's daily RSI ended Wednesday at 23.8
which was its lowest print since a 23.6 reading on March 12,
2020. With Thursday's rally, the RSI ended just shy of the 30.00
Against this, however, the Composite, this week, has
violated its 50-day moving average, the support line from its
March 2020 trough, and its May 6 trough suggesting significant
damage to what has been a prevailing advance.
The May 6 low can now be a resistance hurdle at 13,439,
ahead of the closely watched intermediate-term moving average
and broken support line now in the 13,525/13,575 area.
Meanwhile, since the early part of last year, significant
IXIC lows came with an RSI convergence, either at oversold
levels, or near to oversold territory. Thus, Wednesday's solo
trough may be insufficient to signal a solid low.
In any event, unless the Composite can reclaim the
resistance, lower levels can still, ultimately, beckon. The next
significant support below Wednesday's 13,002 low is at the late
March trough at 12,786 followed by the rising 200-day moving
average, which ended Thursday at 12,465, and the early-March low
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)