Stocks Shrug Geopolitics, Domestic Data

U.S. equities finished higher on the day, apparently dismissing political uncertainty of late, as well as lackluster domestic economic data. Manufacturing and housing data came in below expectations, which followed softer-than-anticipated consumer inflation and retail sales reports while the markets were closed on Good Friday. Elsewhere, Treasuries were mixed, while gold, the U.S. dollar and crude oil prices fell.

The Dow Jones Industrial Average (DJIA) rose 184 points (0.9%) to 20,637, the S&P 500 Index gained 20 points (0.9%) to 2,349, and the NASDAQ Composite increased 52 points (0.9%) to 5,857. In moderate volume, 704 million shares were traded on the NYSE and 1.4 billion shares changed hands on the NASDAQ. WTI crude oil lost $0.53 to $52.65 per barrel and wholesale gasoline was $0.01 lower at $1.72 per gallon. Elsewhere, the Bloomberg gold spot price declined $2.91 to $1,282.78 per ounce, and the dollar index, a comparison of the U.S. dollar to six major world currencies, was down 0.3% at 100.31.

Shares of Eli Lilly and Co. (NYSE:LLY $83) and Incyte Corp. (NASDAQ:INCY $125) fell after their treatment for rheumatoid arthritis was rejected by the U.S. Food and Drug Administration (FDA). The FDA said in a letter that it is unable to approve the application in its current form and indicated clinical data are needed to determine the most appropriate doses. Both companies said they disagree with the FDA's conclusions and the timing of a resubmission will be based on further discussions with the agency. LLY reaffirmed its 2017 financial guidance and INCY said it is evaluating the impact on its previously-issued R&D expenses guidance for 2017.

Arconic Inc (NYSE:ARNC $27) announced that Chairman and Chief Executive Officer (CEO) Klaus Kleinfeld has stepped down, and David Hess will serve as Interim CEO, while Patricia Russo was appointed to serve as Interim Chair. The company said Kleinfeld stepped down by mutual agreement after the Board learned that amid a proxy fight, without consultation with or authorization by the Board, he had sent a letter directly to a senior officer of Elliot Management that the Board determined showed poor judgement. The company added that the decision was not made in response to the proxy fight or Elliot Management's criticisms of its strategy, leadership or performance and is not in any way related to the financials or records of the company. Shares were modestly higher.

Homebuilder sentiment and regional manufacturing slip more than expected

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month declined to 68 from 71 in March, which was the highest level since June 2005, and compared to the Bloomberg expectation of a dip to 70. A 50 mark separates good and poor conditions. The NAHB said even with this month's modest drop, builder confidence is on very firm ground, and builders are reporting strong interest among potential home buyers. However, builders are facing several challenges, such as hefty regulatory costs and ongoing increases in building material prices.

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Along with economic calendar will bring a look at housing construction activity in the form of housing starts and building permits. Starts are projected to decline 3.0% month-over-month to an annualized rate of 1,250,000 units, while permits are forecasted to rise 2.8% to an annual rate of 1,250,000 units.

The Empire Manufacturing Index showed output from the New York region fell more than expected but remained in expansion territory (a reading above zero) for April. The index dropped to 5.2 from March's unrevised 16.4 level, with the Bloomberg forecast calling for a 15.0 reading.

Treasuries finished mixed, as the yield on the2-Year note declined 2 basis points (bps) to 1.19%, while the yields on the 10-Year note and the 30-Year bond rose 2 bps to 2.25% and 2.91%, respectively.

Bond yields and the U.S. dollar have come under pressure recently amid flared-up geopolitical concerns, President Donald Trump's comments that he thought the greenback was getting "too strong," and some cooler-than-expected inflation data.

Investors appear to be shying away from risk, resulting in a pullback in stocks. We view this as temporary, although patience will be required and sharper downturns could occur within the ongoing bull market. "Hard" economic data hasn't accelerated to the same degree as "soft" data (confidence/survey-based), and some convergence is expected. Political and geopolitical uncertainty abounds, while the Fed has begun to address the slow draining of its balance sheet. Global earnings have aided stock market gains, but the expectations bar is getting higher to hurdle. The next several weeks should show whether gains will persist or if expectations may have gone too far.

In addition to tomorrow's housing data, the Federal Reserve's industrial production and capacity utilization report is slated for release, with production expected to show a 0.4% m/m increase during March, while utilization is forecasted to have moved higher to 76.2%.

Asia mixed as many international markets remained closed

Stocks in Asia finished mixed amid heightened geopolitical concerns after another missile test by North Korea, while European markets remained closed for the Easter holiday, along with those in Hong Kong and Australia. The yen continued to gain ground amid the elevated uneasiness, likely limiting gains in Japan as stocks ticked only slightly higher.

Chinese economic data is in focus as the nation reported that its 1Q GDP grew at a 6.9% year-over-year (y/y) pace, from the 6.8% expansion posted in 4Q, where it was expected to remain. Also, China's retail sales, industrial production and fixed asset investment all topped expectations, but mainland Chinese shares declined. China's markets were hampered by the heightened North Korean tensions and exacerbated concerns about further regulatory crackdowns on the markets. Stocks in South Korea rose modestly, while those traded in India fell.

Written By: Marvin Clark