Positive economic data help offset JPMorgan losses

A couple of positive economic reports Friday helped offset a weak opening caused by J.P. Morgan’s startling announcement after the close on Thursday that it lost upwards of $2 billion in arcane credit instruments. While JPM got hammered, falling 9% on Friday, the rest of the market rebounded quickly and spent most of the session in positive territory before drifting lower as the close drew near. The NASDAQ Composite finished Friday about unchanged while the S&P 500 and the Dow each lost 0.3%, with JPM shares accounting for more than 80% of the Dow’s 34-point drop. For the week, all three indexes finished in negative territory, with the Dow off 1.7%, the S&P down 1.1% and the NASDAQ down 0.8%. Bank stocks were mostly negative Friday, with the KBW bank index down more than 1%. Banks with a heavy dependence on trading revenue, such as Morgan Stanley and Goldman Sachs, got hit the hardest, while more consumer-oriented banks, like Wells Fargo and U.S. Bank, closed higher.

The catalyst for the rebound Friday morning was the report of a four-year high in consumer sentiment and, perhaps to a lesser extent, a benign inflation report. The University of Michigan’s consumer sentiment index rose to 77.8 in early May, its highest reading since January 2008, the beginning of the economic recession. The index topped the Street consensus estimate of 76.2. The main reason for the improvement in confidence was a drop in energy prices, which is also why April saw a surprising 0.2% decline in producer prices. Energy prices fell 1.4% last month on top of March’s 1% decline, while gasoline prices fell 1.7% following a 2% drop the previous month. The core PPI, which excludes food and energy costs, rose a modest 0.2% in April, down from the prior month’s increase of 0.3%.

Crude oil prices fell again on Friday, with Nymex crude futures prices falling to below $96, down nearly 3% for the week, more than half of that on Friday. Gold fell about 1% on Friday to $1,580 an ounce, bringing its losses for the week to nearly 4%. Since the end of February, the price of gold has fallen more than $200 an ounce, or more than 11%. Treasury bond prices were up slightly on Friday. The yield on the 30-year bond fell to 3.02%, down five basis points for the week, while the 10-year yield fell four bps to 1.84%.

European stocks closed mostly higher on Friday but ended mixed for the week. Stocks largely took their cue from the U.S., rising after the release of the consumer sentiment report. The German DAX index rose nearly a full 1% on Friday, while the CAC 40 French index was unchanged and the Stoxx Europe 600 rose 0.4%. German bund prices continued to move higher, with the 30-year gaining 9/10ths of a point Friday to yield 2.2%, while the 10-year gained back Thursday decline and ended the week at a yield of 1.52%. The euro was down slightly on the day, to $1.2919 late in the session.

Reports/dates/facts/links worth paying attention to over the next week:

  1. May 15: Consumer price index for April; retail sales for April; Empire State manufacturing survey for May.
  2. May 16: Housing starts for April; industrial production for April; release of minutes of Federal Open Market Committee’s April 25 meeting.
  3. May 17: Weekly jobless claims; Philadelphia Fed survey for May.

Copyright © 2012 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.

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