The Dow Jones industrial average finished the week at another record high, while the broader market lagged behind after a report showed that first-quarter gross domestic product (GDP) growth slowed to 1.3%, much weaker than expected and the slowest pace in four years, while an inflation reading picked up steam. Microsoft's (MSFT) jump in profits helped keep some buyers around.
The stock market has considerable buying power despite numerous skeptics, says S&P. Some investors were looking to Monday's reports on personal consumption, construction spending, and the Chicago PMI for guidance after the soft GDP and high inflation numbers left traders confused, says S&P. Also coming next week is the employment report on May 4.
On Friday, the Dow Jones industrial average rose 15.44 points, or 0.12%, to a new high of 13,120.94, two days after crossing 13,000 for the first time. The broader S&P 500 index edged down 0.18 point, or 0.01%, to 1,494.07. The tech-heavy Nasdaq Composite index added 2.75 points, or 0.11%, to 2,557.21.
Among Dow components, Microsoft led the way, with a 3.5% gain. And General Electric (GE) climbed 2.8% after Citigroup said it thinks a spinoff of the company's NBC, GE Money and and Real Estate units would unlock value in its core business. The firm has a buy rating and $45 price target on GE shares.
The broader market was held down by weakness in homebuilders (MDC Holdings (MDC) reported a big drop in earnings), airlines (JP Morgan downgraded many carriers), and auto makers (Ford (F) said U.S. auto industry sales in April were weak).
In economic news Friday, U.S. first-quarter GDP growth slowed to a 1.3% pace in the advance reading, from 2.5% in the fourth quarter. The drag came from a drop in residential investment, a bigger deterioration in trade than assumed, and a shortfall in government spending, says Action Economics. But equipment and software surpised on the high side, says Action Economics.
The GDP chain price index rose a hot 4.0% following a subdued 1.7% in in the fourth quarter. The core PCE price index was up 2..2% vs. 1.8% in the fourth quarter, says Action Economics.
In the currency markets, the euro set fresh record high against U.S. dollar above $1.3680 on the GDP report in early trading before backing off, reports Action Economics.
The first-quarter employment cost index (ECI) rose 0.8%, following a 0.9% increase in the fourth quater. That left the year-over-year rate at a hefty 3.5%, compared to 3.3% previously. The wages and salaries component was up 1.1%, compared to 0.7% previously. Benefits rose a mere 0.1% vs. 1.1%. The data were about in line with expectations, though the soft benefit costs surprised, says Action Economics.
And the University of Michigan consumer sentiment index rose to 87.1 in the final April reading, vs. the 85.3 preliminary report, confounding Street talk of at least a two point decline, says Action Economics.
After the closing bell Thursday, Microsoft reported earnings per share for March quarter of 50 cents, vs. 29 cents a year ago. That beat the forecast of 46 cents. Revenue jumped 32% to $14.4 billion. The software giant also projected better-than-expected results for fiscal 2008, thanks to solid sales of Windows Vista operating system.
Among other big winners Friday was Baidu.com (BIDU), up almost 14% after the Chinese Internet search provider reported sharply higher revenue and boosted its revenue guidance for the second quarter. Cummins (CMI) climbed nearly 12% after it posted higher first-quarter profits and raised its EPS forecast for 2007.
In deal news, a consortium of banks led by Royal Bank of Scotland said it will go ahead with plans to launch a hostile bid for ABN Amro Holding (ABN), which agreed to be acquired by Barclays PLC (BCS), according to The Wall Street Journal.
In the energy markets, June NYMEX crude oil spiked $1.39 to $66.45 a barrel following the arrest of 170 people in Saudi Arabia, suspected of planning attacks on oil and military installations, reports Action Economics.
European stock markets finished the week on a down note. In London, the FTSE-100 index fell 0.8% to 6,418.7. Germany's DAX index was down 0.1% to 7,378.12. In Paris, the CAC 40 index lost 0.2% to 5,930.77.
Asian markets also moved lower. In Japan, the Nikkei 225 index fell 0.17% to 17,400.41, led down by bank stocks. In Hong Kong, the Hang Seng index lost 0.68% to 20,526.5. In China, the Shanghai Composite Index declined 0.61% to 3,759.87, while the CSI 300 index was down 0.66% to 3,470.52.
Treasury yields ticked up slightly, as the bond market weighed the weaker-than-expected GDP growth reading, rise in inflation, and consumer sentiment. Not even confirmation of an enormous terror dragnet in Saudi Arabia could inspire much of a safety bid as dealers positioned for holidays overseas next week and looked ahead to payrolls, the FOMC and quarterly refunding, says Action Economics. The 10-year yield edged up to 4.698%.