• S&P 500 up 0.89% to 2,876.32
• DJIA up 0.84% to 25,862.68
• NASDAQ up 0.97% to 7,898.05
• Russell 2000 up 0.58% to 1,557.24
• U.S. 10-yr up 2 bp to 2.39%
• WTI Oil up 1.82% to $63.15
Stocks advanced their winning streak to a third consecutive day as investors took a temporary break from trade tensions between the U.S. and China to focus on corporate earnings that beat expectations. The DJIA jumped 214 points, while the S&P 500 climbed 25 points, and the Nasdaq closed 75 points higher. Both Walmart and Cisco Systems delivered strong first quarter earnings and boosted sentiment on the day. You can read more about Walmart and Cisco’s impressive earnings results below in our Stock News section. Other market movers included the financial sector, as shares in Citigroup, J.P. Morgan Chase, Bank of America and Goldman Sachs all rose more than 1% on the day. Meanwhile, optimism increased after housing starts for April and weekly jobless claims came in above expectations. As for the trade front, the Trump Administration declared a national emergency on threats against American technology, which will include a ban on U.S. firms doing business with Chinese telecommunications company Huawei.
Housing Starts (April) – 1.235M vs 1.2M Expected
Following a very disappointing March, April data is one of the most positive reports of the year. Starts rose 5.7% on the month while permits gained 0.6% to 1.295M vs. 1.29M expected. However, the battle is still uphill as year over year comparisons show starts at -2.5% and permits at -5%. April’s improvement is convincing though, with multi-family unit starts up 4.7% in the month and up 6.2% for single-family homes. Q2 could see good residential investment in GDP. Permits were mixed with single-family homes down 4.2% but multi-family units up a sharp 9%. Total permits in the West, where housing has been flattening dramatically, offered especially good news with a second strong monthly showing of plus 5.3% to a 2.3% annual rate. The South, on the other hand, continues to fall at -1.2% in the month and -10.7% annually. Low mortgage rates have yet to trigger much response from home builders, but improvement is underway in home sales and mortgage applications. 2019’s Spring housing season is looking more positive than last year.
Philadelphia Fed Business Outlook Survey (May) – 16.6 vs 9.3 Expected
Business confidence in the face of rising US-China trade tensions appears to be steady and moderate. The sample’s 6-month outlook actually rose slightly. The current reading on general conditions also rose very solidly to the best reading since January, although still down significantly from last year. Growth in new orders this month slowed several points to a still respectable measure, while unfilled orders seems to be growing well. Shipments were very active in the report, which may be contributing to a moderate slowing in delivery times. Employment is very strong and the workweek continues to expand. Price pressures remain steady and moderate for both inputs and selling prices. Overall, data looks constructive despite adverse trade tension effects.
Jobless Claims – 212k vs 219k Expected
Initial jobless claims saw a sharp decline in the week to the low end of consensus range. The four-week average, reflecting higher prior data, is still going up at 225K and is 25K above the historic lows of the beginning of April. Continuing claims fell in the data with its 4-week average just marginally higher. The unemployment rate for insured workers remains at 1.2%. Data today may firm confidence among forecasters to call for a steady lower level next week. The unemployment rate is currently near a 50-year low of 3.6%.
Walmart – Shares closed 1.4% higher after the retailer report first quarter earnings that beat expectations (EPS $1.13 vs. $1.02 expected). However, the company missed by less than 1% on revenue, mainly due to currency headwinds on overseas business. Non-U.S. sales made up about 24% total sales, with China accounting for just under half of that. E-commerce revenues grew by 37%, which is just above the company’s full year guidance for e-commerce sales growth of 35%. This is an impressive number, in part by all of the company’s investments in e-commerce. The CEO said that they are becoming more of a digital enterprise. As a reminder, the company just announced next day delivery on 200,000 items, with more to come over the coming months, likely in response to Amazon’s big push in next day delivery.
Cisco Systems – Shares jumped 6.6% after the networking hardware company reported an adjusted quarterly profit of 78 cents per share, beating the consensus estimate of 77 cents a share. The company’s revenue also beat Street forecasts, while also giving a better-than-expected current-quarter revenue guidance. Furthermore, Cisco said that it sees very minimal impact from the White House’s decision to raise tariffs on $200 billion of Chinese imports from 10% to 25%. The firm added that it is baked into the better-than-feared guidance it provided. Cisco credited its longstanding supply chain optimization efforts and pricing adjustments. In terms of the former, the company pointed out that while it still has some manufacturing happening in China, it has generally reduced its exposure. Cisco’s CFO also told Reuters that only ~3% of company’s revenue comes from China, where a growth slowdown has been a drag on some other big tech names.
• Consumer Sentiment
All estimates come from Econoday’s survey of economists/analysts. Earnings per share estimates are from Factset, are set against year ago results, and represent adjusted earnings.