Summary

The Nasdaq Composite hit a record high on Monday, enhanced by gains in Apple and other big tech stocks that more than offset weak economic data. Apple rose 2 percent and set a record high, supporting the three major Wall Street indexes. Apple is due to report its results on Tuesday.

The S&P 500 technology index, the best performing major group this year, gained 0.9 percent, with big tech names including Microsoft, Alphabet and Facebook hitting records.

Investors braced for another heavy week of quarterly corporate results in an earnings season that has exceeded expectations. Overall, earnings at S&P 500 companies are estimated to have risen 13.6 percent in the first quarter, the most since 2011, according to Thomson Reuters I/B/E/S.

Many on the Street have been watching for results to help justify stock valuations, as the S&P 500 has been trading about 20 percent above its long-term average, based on forward earnings estimates.

The CBOE Volatility Index closed at its lowest level since Feb 2007.

Financials rose 0.6 percent despite volatility caused by President Donald Trump’s comments that he was actively considering breaking up big banks.

Steve Mnuchin, Secretary of the Treasury, said that economic growth of 3 percent is achievable in the next two years as the Trump administration sets out to dramatically cut taxes.

Stock gains may have been muted by a series of tepid economic reports. Factory activity slowed in April, consumer spending was unchanged in March and a key inflation measure recorded its first monthly drop since 2001.

Investors girded for more data later in the week, including Friday’s employment report, as well as for the two-day Federal Reserve meeting starting on Tuesday.

Approximately 6 billion shares changed hands in major domestic equity exchanges, below the 6.5 billion share daily average over the last 20 sessions.

Factory Output Weakens

Factory activity weakened during April, while consumer spending was unchanged in March and a key inflation measure recorded its first monthly drop since 2001. Nonetheless, interest rate increases in June are still very much on the table as the labor market tightens.

The weak reports on Monday came ahead of the Federal Reserve’s two-day policy meeting on Tuesday. It is likely the Fed will view the recent soft data as temporary. At the same time, the Fed is not expected to raise interest rates at the end of the meeting on Wednesday.

The Institute for Supply Management (ISM) said its index of national factory activity dropped to a four-month low of 54.8 in April from a reading of 57.2 in March. A reading above 50 indicates an expansion in manufacturing, which accounts for about 12 percent of the U.S. economy.

The ISM index had risen since last November, scaling a 2-1/2-year high in February, amid optimism over President Donald Trump’s pro-business policy proposals.

It has declined in the last two months with the fallback probably being due to caution among business as they await implementation of Trump proposals. The Trump administration last week proposed a tax plan that includes cutting the corporate income tax rate to 15 percent from 35 percent, but offered no details.

The manufacturing recovery is being supported by rising oil prices, which saw spending on mining exploration, wells and shafts rising at a record 449 percent rate in the first quarter.

Yet, last month saw nearly every sub-index of the ISM index fall. A measure of new orders received at factories fell to a five- month low. A gauge of factory employment dropped to its lowest level since October, which could pose a risk to an expected rebound in job growth in April.

The consumer spending data was included in last Friday’s first-quarter gross domestic product report, which showed the economy growing at a 0.7 percent rate – the weakest performance in three years.

In March, the personal consumption expenditures (PCE) price index excluding food and energy slipped 0.1 percent, the first and largest drop since September 2001, after increasing 0.2 percent in February. The drop reflected declines in the prices of automobiles and mobile phone services.

In the 12 months through March, the so-called core PCE price index increased 1.6 percent, the smallest gain since last July, after advancing 1.8 percent in February. The core PCE is the Fed’s preferred inflation measure and is below the central bank’s 2 percent target.

With price pressures subsiding, inflation-adjusted consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.3 percent in March, ending two straight months of decline. That bodes well for consumer spending in the second quarter.

Consumption will likely be supported by rising wages. Private sector wages recorded their largest increase in 10 years during the first quarter.

In March, private sector income gained 0.2 percent after rising 0.3 percent in February. Income at the disposal of households after accounting for inflation increased 0.5 percent, the largest gain since December 2015. Savings increased to a one-year high of $849.1 billion from $819.0 billion in February.

Could Glass-Steagall Be Coming Back

President Trump said he was actively considering breaking up big banks, Bloomberg Television reported on Monday.

Trump’s comments could give a push to efforts to revive the Depression-era Glass-Steagall law that separated commercial lending from investment banking. Reviving such a law would require an act by Congress.

“I’m looking at that right now,” Trump said on Monday in an interview with Bloomberg News in the Oval Office. “There’s some people that want to go back to the old system, right? So, we’re going to look at that.”

While campaigning for president, Trump had expressed support on the campaign trail for a “21st-century Glass-Steagall.”

White House spokesman Sean Spicer told a news briefing that Trump had expressed interest in the issue and had been briefed on it by Treasury Secretary Steven Mnuchin but was not ready to discuss it publicly.


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