Action this week started on a strong note. Stocks then managed to muster gains that ranged from only incremental to modest during the course of the next few sessions. Still, it was enough to give the S&P 500 a weekly gain of 1.7%, which snapped a streak of three straight weekly slides.
Perhaps most impressive about the stock market’s weekly advance is that it came in the face of continued concerns about persistently precarious conditions in the eurozone.
Most of this week’s gain was earned on Monday, when a blend of bargain hunting and short covering drove the S&P 500 to its strongest performance in two months to snap a six-session losing streak. However, stocks had a hard time building on that bounce with the euro communicating serious concerns about the eurozone by dropping to a near two-year low of about $1.25.
The euro acted as a trading catalyst for most of the week. Its gyrations came amid concerns about the possibility and implications of a eurozone breakup. Those concerns were aroused by a former Greece prime minister, who indicated that the country may be considering an exit from the euro. Subsequent calls by eurozone officials for contingency plans and the need for the creation of eurozone bonds were aimed at addressing the issue. There was also some chatter about coordinated central bank actions regarding swap line fees.
As was the case at the start of the week, stocks were helped later on by some short covering, which helped the broad market reverse out of the red as many market participants were prompted to exit their positions so as to take profits or protect against additional upside action once stocks had stabilized.
In the final session of the week trade was mostly subdued, or at least until the final hour. For the first several hours the broad market was restricted to a low-volume chop with so few traders at their desks ahead of the long Memorial Day weekend. A lack of headlines also made the market less appealing to play. However, a modest slip by the euro seemed to evoke a final flurry of selling. While both the Nasdaq and the S&P 500 managed to limit losses, the Dow fell a little harder due to the weighting of a few Industrial and Financial constituents.
Home improvement retailer Lowe's (LOW 27.24, +0.14) reported stronger-than-expected earnings, but issued disappointing guidance this week. Fellow retailers Best Buy (BBY 19.17, +0.35), Urban Outfitters (URBN 28.42, +0.39), and Polo Ralph Lauren (RL 149.84, +1.16) were also in play. Polo Ralph Lauren complemented its quarterly report with news of plans to double its dividend to $0.40 per share.
Dell (DELL 12.46, +0.01) endured its worst one-day drop in more than a decade to set a new 52-week low in response to a disappointing quarterly report. Fellow Tech outfit Hewlett-Packard (HPQ 22.33, +0.56) was greeted with a positive response following its latest earnings announcement, resulting in the stock’s best single-session percentage gain in more than a month. Meanwhile, Yahoo! (YHOO 15.36, +0.01) made headlines with its decision to sell half of its stake in Alibaba.
Diversified financial services giant JPMorgan Chase (JPM 33.50, -0.47) opted to suspend its share repurchase program, but stated that it intends to maintain its dividend.
Only a dearth of domestic data was released this week.
Durable goods orders increased by 0.2% during April, but orders less transportation items declined by 0.6%. It had been generally expected that overall orders would increase by 0.3%, while orders less transportation would increase by 1.0%. Prior month data was revised to reflect a 3.7% decline in overall orders and a 0.8% decline in orders less transportation items.
The latest weekly initial jobless claims count totaled 370,000, which is on par with the 365,000 initial claims that had been widely forecasted, and consistent with the 372,000 initial claims filed in the prior week.
During April existing home sales hit an annualized rate of 4.62 million while new home sales hit an annualized rate of 343,000. Respective rates of 4.65 million and 339,000 had been broadly expected.
The revised monthly Consumer Sentiment Survey from the University of Michigan made a surprise improvement to 79.3, which stands as a four-year high.
Global data of note featured disappointing PMI manufacturing and services numbers from the eurozone. Numbers from France also disappointed, but readings from Germany were more mixed.
Amid the persistently precarious conditions in Europe, the OECD now expects a mild economic contraction in the euro area.
Leaders of China conveyed a willingness to consider accommodative policies with regard to stimulating economic growth. Later in the week it was announced that the World Bank trimmed its growth forecast for China to a rate slightly greater than 8%.
The Japanese yen was also hit with selling pressure. Its weakness followed a decision by analysts at Fitch to downgrade Japan's long-term debt rating to A+ from AA.
Late last week the yield on the benchmark 10-year Note set a new historical low fractionally under 1.70%, but improved sentiment in the stock market prompted some participants to rotate out of the safe haven, resulting in a modest rise in yields.
A series of auctions this week featured offerings for Notes with 2-year, 5-year, and 7-year terms.
The auction of 2-year Notes drew a bid-to-cover of 3.95, dollar demand of $138.3 billion, and an indirect bidder participation rate of 33.3%. For comparison, the prior auction drew a bid-to-cover of 3.76, dollar demand of $131.6 billion, and an indirect bidder rate of 32.1%, while an average of the past six auctions results in a bid-to-cover of 3.71, dollar demand of $129.9 billion, and an indirect bidder rate of 33.1%.
Results from an auction of 5-year Notes drew a bid-to-cover of 2.99, dollar demand of $104.7 billion, and an indirect bidder participation rate of 42.6%. For comparison, the prior offering produced a bid-to-cover of 3.09, dollar demand of $108.2 billion, and an indirect bidder rate of 47.5%, while an average of the past six auctions results in a bid-to-cover of 3.00, dollar demand of $105.1 billion, and an indirect bidder participation rate of 45.1%.
The auction of 7-year Notes drew a bid-to-cover of 2.80, dollar demand of $81.2 billion, and an indirect bidder participation rate of 42.7%. For comparison, the prior auction attracted a bid-to-cover of 2.83, dollar demand of $82.1 billion, and an indirect bidder rate of 38.2%, while an average of the last six auctions results in a bid-to-cover of 2.88, dollar demand of $83.5 billion, and an indirect bidder rate of 39.4%.
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