Markets Pare Weekly Gains Amid More Stark Data…..

U.S. equities finished lower, paring back the rally that began the week, amid a host of May global manufacturing and services sector reports that showed improvements, but continued contraction. Meanwhile, the markets continued to monitor the progress on global economic reopenings, as well as mixed headlines regarding the healthcare sector’s fight against the COVID-19 pandemic. Earnings continued to trickle in, as Take-Two Interactive posted strong Q4 results but offered mixed guidance, Best Buy topped Q1 expectations but held off on issuing full-year guidance, Macy’s offered a preliminary look at Q1 results, which showed a sharp drop in sales, and Starbucks provided some positive signs of recovery in its sales. In other economic news in a day chock full of data, April Leading Indicators and existing home sales declined by smaller amounts than expected, while manufacturing activity in Philadelphia improved by a slightly smaller amount than forecasted. Treasury yields were nearly unchanged, and the U.S. dollar was up slightly, while crude oil prices saw modest gains and gold came under solid pressure. Europe finished mostly lower, while markets in Asia were mixed.

The Dow Jones Industrial Average fell 102 points (0.4%) to 24,474, the S&P 500 Index decreased 23 points (0.8%) to 2,949, and the Nasdaq Composite lost 91 points (1.0%) to 9,285. In moderately heavy volume, 976 million shares were traded on the NYSE and 3.7 billion shares changed hands on the NASDAQ. WTI crude oil moved $0.43 higher to $33.92 per barrel and wholesale gasoline gained $0.01 to $1.05 per gallon. Elsewhere, the Bloomberg gold spot price tumbled $21.55 to $1,726.63 per ounce, while the Dollar Index—a comparison of the U.S. dollar to six major world currencies—rose 0.3% to 99.40.

Employment and business activity data continues to paint painful picture…..

Weekly initial jobless claims came in at 2,438,000 for the week ended May 16th, above the Bloomberg estimate of 2,400,000, and compared to the prior week’s downwardly-revised 2,687,000 level. The four-week moving average fell by 501,000 to 3,042,000, while continuing claims rose by 2,525,000 to 25,073,000, north of estimates of 24,250,000. The four-week moving average of continuing claims for the week ended May 9th increased by 2,313,500 to 22,002,250.

The preliminary Markit U.S. Manufacturing PMI Index for May improved to 39.8 from April’s unrevised 36.1 figure, but slightly below consensus estimates calling for a rise to 40.0. The preliminary Markit U.S. Services PMI Index showed output for the key U.S. sector increased to 36.9 from April’s 26.7 figure, above forecasts of an improvement to 32.5. Readings south of 50 for both indexes denote contraction. Markit said U.S. private sector firms reported a slightly lower rate of contraction of activity in May as the economy began to reopen, but the fall in output was substantial as both manufacturers and service providers indicated marked declines in client demand amid the COVID-19 disruption.

The Philly Fed Manufacturing Index in May improved by a smaller amount than expected to -43.1 from the -56.6 posted the month prior, versus expectations of an improvement to -40.0, with a reading below zero denoting contraction.

The Conference Board’s Index of Leading Economic Indicators (LEI) for April fell 4.4% month-over-month (m/m), compared to projections of a 5.4% drop, while March’s figure was revised lower to a 7.4% decrease, which was the biggest monthly drop on record. The employment components of the index contributed the most to the drop as the severe spike in jobless claims was accompanied by a tumble in average workweek. ISM new orders and building permits also weighed noticeably on the index, but stock prices and the yield curve were modest positive contributors.

Existing home sales tumbled 17.8% m/m in April to an annual rate of 4.33 million units, compared to expectations of 4.22 million units and March’s unrevised 5.27 million rate. Sales continued to fall for a second-straight month due to the COVID-19 pandemic disruption, with each of the four major regions experiencing declines m/m and y/y, with the West seeing the greatest dip in both categories. Sales of single-family homes and purchases of condominiums and co-ops were both down m/m and y/y. The median existing home price was up 7.4% from a year ago to $286,800, marking the 98th straight month of y/y gains. Unsold inventory came in at a 4.1-months pace at the current sales rate, up from 3.4-months in March and down from the 4.2-month figure a year earlier. Existing home sales reflect contract closings instead of signings and account for a large majority of the home sales market.

National Association of Realtors Chief Economist Lawrence Yun said, “The economic lockdowns—occurring from mid-March through April in most states—have temporarily disrupted home sales,” but he added that “the listings that are on the market are still attracting buyers and boosting home prices.” Yun concluded that record-low mortgage rates are likely to remain in place for the rest of the year and will be the key factor driving housing demand as state economies steadily reopen, but still more listing and increased home construction will be needed to tame price growth.

Treasuries were nearly unchanged, as the yields on the 2-year and 10-year note were flat at 0.17% and 0.67%, respectively, while the 30-year bond rate ticked 1 basis point (bp) lower to 1.39%.

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