• Stocks End Slightly Negative. U.S. stocks finished the week slightly negative, as sharp gains stemming from a tech rally overshadowed a lack of progress in U.S.-China trade talks and mixed takeaways within the April payrolls report. The S&P 500 and Dow Industrials declined fractionally, while the tech-heavy Nasdaq Composite advanced more than 1%.
• Tepid Declines. For the week, the S&P 500 declined by 0.21%, the Dow Industrials fell 0.20%, while the tech-heavy Nasdaq Composite gained 1.29%. Small cap stocks outperformed relative to the S&P 500, with the Russell 2000 Index gaining 0.62% last week.
• Technology Regains Leadership. Technology (+3.24%), Real Estate (+1.01%) and Materials (+0.07%) led gainers last week, while Telecom (-4.58%), Healthcare (-3.04%) and Consumer Staples (-2.04%) fell the most. Technology (+7.53%) is up most on a year-to-date (YTD) basis, followed by Consumer Discretionary (+5.85%).
• Unemployment Rate Hits 18-Year Low. April payrolls rose by 164,000, shy of the 193,000 forecast, while revisions for the prior two months added 30,000 new jobs. Separate data showed the headline unemployment rate fell to 3.9%, while the underemployment rate fell to 7.8%, the first time below 8% since year-end 2006.
• Benchmark Yields Edge Lower. The yield on benchmark 10-year Treasury notes flirted with 3% on Wednesday, but yields reversed direction later that day after Fed policymakers announced no-change in interest rates and gave no indication of accelerating the pace of future rate hikes. The U.S. Dollar Index advanced 1.12%, while the yield on benchmark Treasury notes slipped 7 basis points to end the week at 2.951%.
The ISM Manufacturing PMI, which measures sentiment on manufacturing activity, fell for a second month in a row in April ,after reaching a 14-year high of 60.8 in February. Manufacturing activity in April was still strong, as the Manufacturing PMI was 57.3, a level that is consistent with strong economic growth. A reading above 50 signals expansion in the manufacturing sector, while below 50 indicates contraction. Despite the moderate pullback, the overall trend for manufacturing remains healthy. The three-month average for the Manufacturing PMI is near the highest level of the current expansion and the 12-month average is at its highest level since 2005.
The ISM survey did mention that businesses are cautious about the uncertainty surrounding the impact of tariffs. Another concern is that signs of inflation were reported in the ISM data, due to the rising costs of raw materials, as the ISM Prices Paid Index climbed to a seven-year high. In our view, manufacturing activity will likely remain healthy this year because of stable global economic growth; lower taxes will likely offset the negative implications surrounding tariffs and the moderate pickup in inflation.