Benchmarks finished in the red on Friday, as the U.S. economy recorded its slowest first quarter growth in three years. Investors also remained cautious about the Trump Administration's outline for tax-reform plan. Meanwhile, strong earnings performance by Amazon and Alphabet lifted investor sentiment, which helped trim losses for the broader market.
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The Dow Jones Industrial Average (DJI) declined 0.2% to close at 20,940.51. The S&P 500 fell 0.2% to close at 2,384.20. The tech-laden Nasdaq Composite Index declined 1.33 points to close at 6,047.61 after reaching to an intraday high of 6,074.04. The fear-gauge CBOE Volatility Index (VIX) gained 5.4% to 10.92. A total of around 3.7 billion shares were traded in NYSE on Friday. Decliners outpaced advancing stocks on the NYSE. For 59% stocks that declined, 37% advanced.
First Quarter GDP Growth
The U.S. economy grew at its slowest pace in the first quarter in three years, owing to the smallest increase in consumer spending since the end of 2009. As per the Bureau of Economic Analysis, real gross domestic product (GDP) increased at an annual rate of 0.7% in the first quarter of 2017, missing the Zacks Consensus Estimate of 1.2%. The last quarter of 2016 recorded a real GDP growth of 2.1%.
The slowdown in first quarter GDP growth is primarily attributable to sluggish consumer spending. Consumer spending increased 0.3%, marking the smallest increase since the last quarter of 2009. Number of purchases of durable goods, including big-ticket items, such as cars and refrigerators dropped. Spending on services also recorded its slowest growth in four years. Government spending at state and local levels also declined 1.7%, marking its largest fall in four years.
GDP growth was dragged down by almost a percentage point by low inventory investment. Meanwhile, fixed business investment gained 10.4% and was accountable for bulk of the GDP growth in the first quarter. Economic data released this week had a negative impact on investors' confidence, which ultimately had an adverse impact on the broader market.
Tax Reform Outline
On Wednesday, Trump administration rolled out a single page outline of tax-reform plan which included reduction of individual and corporate rates and simplification of the tax code. The plan promised to reduce the corporate tax rate to 15% from 35%. It also promised to slash the top income tax rate from 39.6% to 35%.
However, investors were disappointed as they had expected some more details about the tax-reform package from Trump administration.
Amazon.com AMZN released fourth-quarter fiscal 2016 financial results, with both earnings and revenues exceeding estimates. The company reported earnings of $1.48 per share in the reported quarter, beating the Zacks Consensus Estimate of $1.03. Moreover, the company saw revenue figures of $35.7 billion, surpassing the Zacks Consensus Estimate of $35.39 billion. Strong cloud computing sales, higher revenues from advertising and media streaming services also contributed to its better-than-expected quarterly results. Shares of the company advanced 0.7%.
Shares of Alphabet Inc GOOGL gained 3.7% following the release of its first quarter fiscal 2017 financial results. The company reported earnings of $7.73 per share, surpassing the Zacks Consensus Estimate of $7.24 per share. The company posted revenues of $20.12 billion, beating the Zacks Consensus Estimate of $19.65 billion. The impressive performance is attributable to benefit from its ongoing investments in product innovation. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Strong earnings results from Amazon and Alphabet had a positive impact on the investors' sentiment which ultimately helped Nasdaq curb some losses.
For the week, the Nasdaq, S&P 500 and Dow advanced 2.3%, 1.5% and 1.9% respectively. The S&P 500 recorded its best weekly gain since end of February 2017. Meanwhile, the Nasdaq closed above 6,000 for the first time ever since its inception in 1971. Some of the top companies continued to post strong performances in the earnings season. Meanwhile, sales of newly-constructed homes in March increased 5.8% above its revised February rate.
For the month, the Nasdaq, S&P 500 and Dow advanced 2.3%, 0.9% and 1.3% respectively. During the month, benchmarks suffered a setback due to weak auto sales data, a dip in manufacturing growth and rise in geopolitical tensions. Meanwhile, retail sales fell in March for two consecutive months, posting their worst two-month stretch in two years due to weak demand in automobile sector. However, strong quarterly earnings reports from companies helped benchmarks finish in green for the month.
Stocks that made Headlines
Fomento Economico Mexicano S.A.B. de C.V. FMX , alias FEMSA, posted first-quarter 2017 net majority income of 49 cents per ADS (Ps. 92 cents per FEMSA unit), falling much below the Zacks Consensus Estimate of 62 cents. ( Read More )
Energy giant BP Plc BP recently declared that it has inked an agreement to divest its 50% stake in Shanghai SECCO Petrochemical Company Limited to China Petroleum & Chemical Corporation or Sinopec's SNP subsidiary, Gaoqiao Petrochemical Co Ltd., for $1.68 billion. ( Read More )
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