US stock markets are heading lower early in the Friday session, as traders interpret the latest Retail Sales release. The March report showed a decline of -0.4%, after a rise of 1% the previous month. Expectations called for a flat reading (0.0%), but the downside surprise showed the weakest figures in 9 months. Market response has been limited, however, and early losses in the S&P 500 have been contained at 1580. Lows in the Dow Jones were seen at 14,730 but have since bounced at the session open. This bodes well for stocks as a whole into the Friday close, and with a positive earnings story from Wells Fargo, financials we well-positioned to be the leading sector on the day.
The Wells Fargo earnings report was the positive story of the day, and showed 4th quarter profits at $0.92 per share (higher than the consensus estimate of $0.88). Reported net income of $5.2 billion also beat the initial estimates of $4.75 billion but this was somewhat balanced by the weaker net revenues of $21.3 billion. Mortgage banking revenues were also lower at $2.8 billion (down from $3.1 billion). The company repurchased 17 million shares of common stock in the first quarter and the Federal Reserve approved a quarterly dividend increase of 20% (to 30 cents) in March.
Trading activity this week as been relatively subdued, given the lack of economic data and market moving news headlines. With the new all-time highs seen in the S&P this week, it appears that markets are interpreting “no news” as “good news,” and given the bounce we are seeing early in the session, this looks set to continue for the remainder of the trading day. Longer term, however, the new highs in stocks are starting to look questionable given the weak economic data we have seen recently. The latest Retail Sales report will be a negative factor to consider when dealing with the next set of earnings projections, not entirely encouraging given the latest figures in the labor markets.
Chart Perspective
S&P 500:
The S&P 500 saw an early drop on Friday but quickly found support at 1580. This is the key short term area to watch on the downside, as there is likely to be potentially momentum building stop losses near that level. To the upside, initial resistance comes in at 1592 but with the psychological 1600 level just behind, it is unlikely we will see a forceful bullish move before the close. Expect range bound trading for the remainder of the day, a downside break of 1580 targets Fib support at 1569.
Wells Fargo (WFC):
WFC is trading near historical support at $36.55, and the level matches up with the 23.6% Fib retracement of the move from just above $31. A downside break here will place the bear target at the 38.2% Fib retracement, now seen at $35.50. If we can manage to hold above the initial Fib support level, the focus remains on the monthly highs at $38.20 but we are likely to see range trading into the end of the week.
