No matter how you look at it April’s last trading day was anything but pleasant as healthcare stocks slid over the potential for rising costs for companies due to higher oil prices. Nonetheless, the major domestic equity indexes did manage to eke out a small gain in April to snap a two-month losing streak.
For the month, the S&P 500 rose 0.27 percent, the Dow added 0.25 percent and the Nasdaq gained 0.04 percent.
The healthcare sector, which fell 1.6 percent, weighed most heavily on the S&P 500, as shares of Allergan and Celgene led the sector’s slide. Shares of Allergan fell 5.2 percent after the company’s chief executive said he was opposed to fundamental changes to the drug company’s business strategy.
Celgene fell 4.5 percent. Morgan Stanley said it expects a delay of up to three years for Celgene’s key multiple sclerosis drug, ozanimod.
Crude oil prices rallied after Israeli Prime Minister Benjamin Netanyahu said Iran had lied about not pursuing nuclear weapons after signing a 2015 deal with global powers.
Even as companies’ quarterly results have come in strong, their earnings calls have raised concerns that rising commodity prices may pinch profit margins in the future.
The possibility that temporary exemptions on steel and aluminum tariffs might expire for several of our allies also weighed on the equity markets. Without a White House extension, the exemptions will expire on Tuesday.
Early in the day’s trading session, stocks were helped by data on income and spending that kept broader inflation worries in check.
Personal income rose 0.3 percent in March, compared with expectations of 0.4 percent. On the consumption side, personal spending growth in February was revised lower to 0.3 percent, instead of the previously reported 0.4 percent.
McDonald’s shares gained 5.8 percent after the company quarterly results exceeded analysts’ sales and earnings forecasts.
Shares of T-Mobile and Sprint sank on worries that the two companies’ $26 billion merger would face regulatory challenges. Sprint shares ended the trading day down 13.7 percent, while T-Mobile fell 6.2 percent.
Arconic fell 20.6 percent after the aluminum products maker slashed its 2018 forecasts.
Approximately 6.81 billion shares changed hands on the major domestic equity exchanges, as compared to the 6.57 billion share average over the past 20 trading days.
Consumer Prices Rise
The Commerce Department reported on Monday morning that consumer prices accelerated in the year to March, coming close to the Federal Reserve’s two percent target as last year’s weak readings dropped out of the calculation.
The rise in the annual inflation measures was anticipated and Fed officials and is not expected to alter the Fed’s gradual pace of interest rate increases. Annual inflation readings in March of last year were held down by large declines in the price of cell phone service plans.
Consumer prices as measured by the personal consumption expenditures (PCE) price index rose 2.0 percent year-on-year last month. That was the largest gain since February 2017 and followed a 1.7 percent rise in February.
Month over month, the PCE price index was unchanged after advancing 0.2 percent in February.
Excluding the volatile food and energy components, the PCE price index rose 1.9 percent in the 12 months through March, the biggest increase since February 2017, after increasing 1.6 percent in February. The so-called core PCE price index rose 0.2 month-on-month in March after a similar gain in February.
The core PCE index is the Fed’s preferred inflation measure. Last month’s increase was in line with Street expectations.
Minutes of the Fed’s March 20–21 policy meeting published this month showed officials expected the annual PCE price indexes to accelerate in March partly because of “the arithmetic effect of the soft readings on inflation in early 2017 dropping out of the calculation.”
The minutes also noted that the rise in inflation emanating from the so-called base effects “by itself, would not justify a change in the projected path” for the central bank’s benchmark overnight interest rate.
Fed officials are scheduled to convene on Tuesday and Wednesday for a regular policy meeting. The Fed raised rates last month and forecast at least two more rate hikes for this year.
Away from the favorable base effects, inflation is rising thanks to a tightening labor market. The government reported last Friday that wages and salaries recorded their biggest increase in 11 years in the first quarter.
Inflation is also likely to be fanned by an anticipated pickup in economic growth, driven by a $1.5 trillion tax cut package and increased government spending.
The Commerce Department’s report on Monday showed consumer spending increased 0.4 percent in March after being unchanged in February. The data was included in last Friday’s advance first-quarter gross domestic product report.
Consumer spending, which accounts for more than two-thirds of economic activity, grew at a 1.1 percent annualized rate in the January-March period, the slowest pace in nearly five years, after surging at a 4.0 percent pace in the fourth quarter.
Because of the weakness in consumer spending, the economy grew at a 2.3 percent rate in the first quarter after expanding at a 2.9 percent pace in the final three months of 2017.
When adjusted for inflation, consumer spending increased 0.4 percent in March. The so-called real consumer spending fell 0.2 percent in February. The rebound in real consumer spending last month supports expectations that consumption was held back by temporary factors and will gain steam in the second quarter.
Aiding consumer spending in March was an increase in the purchases of long-lasting goods such as motor vehicles after two straight monthly declines. There were also increases in purchases of recreational goods.
Cooler temperatures in March raised the demand for heating, leading to a rise in household electricity and gas purchases.
Personal income rose 0.3 percent in March after increasing by the same margin in February. Wages gained 0.2 percent in March after rising 0.4 percent in the prior month.
With spending outpacing income, savings fell to $460.6 billion last month from $483.1 billion in February. The saving rate slipped to 3.1 percent from 3.3 percent in February.