Fri, 25 Apr 2014 16:08 PM EST- US equity markets bounced erratically between earnings enthusiasm and Ukraine-induced fear this week in a low-volume, post-Easter holiday environment. Strong quarterly results from major tech names and Dow components helped push indices higher, with Apple and Facebook the particular standouts. In addition, several huge merger deals in the pharmaceutical space also helped risk appetite. But the steady deterioration in the Ukraine situation dragged things lower and the continuing rotation out of momentum names whipped around the Nasdaq all week. For the week, the DJIA is down 0.3%, the S&P500 is off 0.1% and the Nasdaq fell 0.5%.
– The Ukraine crisis deepened this week as Kiev pressed its “anti-terrorist” operations in Eastern Ukraine and Russia conducted “military exercises” along the border. At one point, Russian armor was said to have moved in force to within one kilometer of the border, inspiring real fears that the invasion was imminent. Russia President Putin called the use force against pro-Russian forces in Ukraine “a crime” that will have consequences, while Russia’s UN ambassador went as far as invoking a nation’s right to self-defense under the UN charter as a justification for potential direct intervention in Ukraine. Officials in Kiev warned that any Russian incursions would be met directly with military force, while the Western powers convened on Friday to discuss arranging possible sanctions on the broader Russian economy.
– New home sales in the US tumbled to eight-month low in March, dropping 14.5% y/y. However the January and February totals were revised up 3% and 2%, respectively. Affordability is likely becoming a big factor for the market: the median new home price rose to a record high of $290K, up 13% y/y.
– Front month WTI crude lost over 3% this week, dropping from nearly $104 to just above $100 on profit taking. Concerns about further builds in US crude oil inventories overshadowed tensions between Russia and Ukraine. Last Wednesday, the EIA weekly report showed that US crude inventories were only 3.4 million barrels below the peak reached in May 2013. This week’s EIA report pushed US crude oil inventories above the 2013 high to 397.7 million barrels, levels not seen in 80 years.
– Excellent earnings from Apple, Facebook and Netflix could not save the Nasdaq from Amazon and the continuing rotation out of hot tech stocks this week. Both Facebook and Apple beat earnings and revenue targets, while Apple crushed expectations for iPhone shipments and boosted capital returns to shareholders. Facebook saw solid gains in user metrics and an 82% y/y gain in advertising revenue. Netflix sustained decent metrics and met expectations. Apple sustained 8% gains on the week, while gains in FB and NFLX evaporated rapidly. Amazon dropped 5% on the week after operating income shrank y/y and the firm’s second quarter revenue guidance fell short of consensus expectations. Microsoft offered solidly in-line, vanilla results.
– Results from the big US automakers were hampered, like everything else, by bad weather, although there were some self-inflicted wounds as well. General Motors beat earnings forecasts, despite a big decline in profits due to its recent recalls. Ford’s first quarter profit was down from the same period last year and missed expectations. Caterpillar posted a quarterly profit that topped analysts estimates and raised its full-year outlook on a stronger-than-expected rebound in sales in the construction industry.
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