First Quarter GDP Disappointment Stings Stocks

The disappointing first quarter GDP report arrived on a day when two seemingly-invincible American institutions, Amazon (AMZN) and Starbucks (SBUX), were stumbling after the release of their earnings reports.

Although economists were expecting to see that first quarter Gross Domestic Product expanded at an annual rate of 3.1 percent, the advance estimate of first quarter GDP from the Commerce Department’s Bureau of Economic Analysis indicated less-significant expansion at the rate of 2.5 percent.

Adding to the disappointment was the fact that Amazon (NASDAQ:AMZN) reported a 37 percent drop in net income during the first quarter and gave second quarter revenue guidance which fell short of analysts’ estimates. Its share price sank more than 7 percent on the news. Starbucks (NASDAQ:SBUX) saw its share price decline by a less-drastic 0.83 percent after reporting sales which missed analysts’ estimates.

The Dow Jones Industrial Average (DIA) picked up 11 points to reach 14,712 for an 0.08 percent advance. The S&P 500 (SPY) dipped 0.18 percent to close at 1,582.

The Nasdaq 100 (QQQ) declined 0.28 percent to 2,840. The Russell 2000 (IWM) fell 0.53 percent to end the day at 935.

In other major markets, oil (USO) retreated a bit, with a 0.42 percent decline to close at $33.11.

On London’s ICE Futures Europe Exchange, June futures for Brent crude oil declined by 47 cents (0.45 percent) to $102.94/bbl. (BNO).

June gold futures declined by $4.60 (0.31 percent) to $1,457.40 per ounce (GLD).

Transports inched forward on Friday, with the Dow Jones Transportation Index (IYT) advancing 0.02 percent.

All of the major European stock indices declined on Friday, as reports focused unwanted attention on the fact that more than half of the companies listed on the STOXX Europe 600 Index, which have reported earnings so far this quarter, disclosed results which fell short of analysts’ estimates. The “Draghi put” did not give investors enough confidence to maintain those long positions over the weekend (VGK).

The Euro STOXX 50 Index finished Friday’s trading session with a 0.78 percent drop to 2,683 – staying above its 50-day moving average of 2,647. After breaking above its overhead resistance level of 2,700 on January 21, the STOXX 50 is again experiencing resistance at that level, which has been a barrier since the beginning of the year.

Japan’s stock market took a step back on Friday after the Bank of Japan disappointed proponents of Abenomics by failing to take any additional steps toward monetary easing at Friday’s meeting. The yen advanced as high as 97.65 per dollar on Friday. A stronger yen results in less-competitive prices for Japanese exports in foreign markets (FXY). The Nikkei 225 Stock Average declined 0.30 percent to 13,884 (EWJ).

In China, stocks had a tough day on the Shanghai Stock Exchange as a result of the government’s crackdown on unsavory practices in the financial sector, which is particularly focused on bond traders. The Shanghai Composite Index fell 0.97 percent to 2,177 (FXI) although Hong Kong’s Hang Seng Index advanced 0.65 percent to 22,547 (EWH).

Technical indicators reveal that the S&P 500 remains above its 50-day moving average of 1,549 with a close at 1,582 – motivating bears to watch for the possible formation of a double-top, which would signal a decline. Its Relative Strength Index is at a healthy 57.07. Although the MACD crossed above the signal line on Thursday, it has not risen from there. A break back below the signal line would suggest the likelihood of a more significant decline.

For the day, most sectors finished in negative territory, except for the consumer staples and utilities sectors, both of which advanced by a modest (but lucky) 7 basis points. The materials sector made the most significant drop, sinking 1.42 percent.

Consumer Discretionary (NYSEARCA:XLY): -0.48%

Technology: (NYSEARCA:XLK): -0.03%

Industrials (NYSEARCA:XLI): -0.29%

Materials: (NYSEARCA:XLB): -1.42%

Energy (NYSEARCA:XLE): -0.17%

Financials: (NYSEARCA:XLF): -0.43%

Utilities (NYSEARCA:XLU): +0.07%

Health Care: (NYSEARCA:XLV): -0.08%

Consumer Staples (NYSEARCA:XLP): +0.07%

Bottom line: A disappointing first quarter GDP report combined with bad news from Starbucks and Amazon to sedate the “animal spirits” which had sent stocks soaring since last Thursday.

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