Stocks closed mostly higher Monday, just shy of records, despite weaker-than-expected manufacturing data that dulled some of the optimism around the recovery of U.S. corporations from the COVID pandemic.
How did stock benchmarks perform?
The Dow Jones Industrial Average
advanced 238.38 points, or 0.7%, ending at 34,113.23, its third-highest close in history.
added 11.49 points, or 0.3%, to close at 4,192.66, its second-highest finish ever.
The Nasdaq Composite
fell 67.56 points, or 0.5%, finishing at 13,895.12, extending its losing streak to 2 days.
On Friday, the Dow posted a weekly decline of 0.5%, but notched a 2.4% gain in April, while the S&P 500 was virtually unchanged, but gained 5.6% last month. The Nasdaq Composite registered a weekly loss of 0.4% but jumped 7% in April.
What drove the market?
U.S. equities finished mostly higher to kick off May, despite some economic data suggesting that “crazy” prices and rampant shortages of parts, materials and labor could threaten the rebound in manufacturing.
The manufacturing index from the Institute for Supply Management fell to 60.7% in April from a 38-year high of 64.7% in the prior month. Though, any number above 50 marks an increase in factory activity, April’s reading fell short of analysts’ expectations for a reading of 65%.
“Whether that pace [of manufacturing activity] can be maintained remains to be seen,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “Even a well-positioned and eager consumer sector could cool as price hikes accelerate, and the potential for supply-chain disruptions to slow production further could further curtail sales.”
Even with continued disruptions to supply chains, investors remain focused on a bright outlook for U.S. corporations despite the COVID pandemic, with some of the biggest companies affirming that a genuine rebound is under way.
The revival was at least partially on display as conglomerate Berkshire Hathaway
reported a 20% jump in its operating profit, rising to $7.02 billion from $5.87 billion in the year prior.
Berkshire, helmed by billionaire investor Warren Buffett, over the weekend also reported first-quarter net income of $11.7 billion, compared with a loss of $49.7 billion, in the year-earlier period.
Berkshire’s performance helped bolster confidence in equities to kick off May, traditionally a month associated with the start of a comparatively weak six-month seasonal stretch of trading.
“Overall, Q1’s earnings performance is shaping up to be one of the largest gains in
corporate profits since the tailwind from the Tax Cuts & Jobs Act of 2017,” wrote a Glenmede investment strategy team, in a Monday note. “All in all, positive earnings growth is expected to continue into the later stages of 2021, as we trend toward a version of economic normalcy.”
Of the S&P 500 companies that have reported results so far, 87.1% beat earnings estimates, according to Refinitiv, a figure that would be the highest on record since 1994 when it began tracking the data.
Investors also saw positive developments from Europe, bolstering confidence in the eurozone recovery. The European Commission on Monday proposed allowing entry by nonessential travelers who have been fully vaccinated to the region.
In the U.S., Fed Chairman Jerome Powell said the U.S. economic outlook has “clearly brightened,” but also stressed that the recovery has been uneven, exacerbating longstanding disparities, in a talk at the Just Economy conference.
Anxieties surrounding the Fed’s response to a stronger economy has kept investors on edge. New York Fed President John Williams on Monday said he expects inflation to top 2% for rest of the year, but to decline after the economy has recovered. Dallas Fed President Robert Kaplan said Friday that he thinks it is time to discuss tapering the Fed’s asset purchases.
Bernard Baumohl, chief global economist at The Economic Outlook Group, recently wrote that the Fed will have to walk a fine line as it eventually dials up interest rates and tapers an asset-purchasing program that has helped to support markets during the height of the pandemic-inspired stock selling in March.
“So what should the Fed do at this stage? Frankly, nothing major at this time. But as the economy regains its footing, Powell will face one truly vexing issue later this year: How do you reduce asset purchases without causing major turbulence in the bond market?” wrote Baumohl.
The Treasury Department said on Monday that it expects to ratchet up its borrowing to $463 in the April-June quarter, which is $368 billion higher than previously estimated.
Which companies were in focus?
shares closed down 1% after its fiscal third-quarter sales missed expectations. The company also swung to a net loss from a profit a year ago, as a result of an impairment charge of $329 million, or $2.11 a share.
Shares of Berkshire’s Class B shares
rose 1.6% after Buffett said Greg Abel, the conglomerate’s vice chairman in charge of non-insurance operations, would be his successor as CEO if Buffett left the job.
Tesla Inc. shares
fell 3.5% after a German trade magazine reported that Tesla’s gigafactory in Berlin is likely to be delayed by six months.
Shares of Verizon Communications Inc.
rose 0.2% after it announced it would sell Verizon Media, including its Yahoo and AOL brands, for $5 billion to private-equity firm Apollo Global Management Inc.
Domino’s Pizza Inc.
said in a Monday filing that it has entered into a $1 billion accelerated share repurchase agreement with Barclays.
Shares of GameStop Corp .
fell 6.6%, after the videogame and consumer electronics retailer announced it has effectively eliminated its long-term debt.
Estée Lauder Companies
shares slid 7.9%, after the cosmetics and beauty company posted stronger-than-expected profit for its fiscal third quarter but sales that missed estimates.
How did other assets fare?
Hong Kong’s Hang Seng index
fell 1.3%. Bourses in Shanghai and Tokyo were closed. The Stoxx Europe 600
booked a 0.6% gain.
The 10-year Treasury note yield
fell 2.6 basis points to 1.606%, following the weaker manufacturing data.
The greenback was weaker, trading down 0.4% based on the ICE U.S. Dollar Index
Prices for gold futures
finished 1.4% higher to settle at $1,791.80 an ounce on Comex. U.S. crude futures
closed up 1.4% to settle at $64.49 a barrel.
Mark DeCambre contributed reporting