The major domestic equity indexes closed out the trading day on Tuesday, slightly higher with the S&P 500 index inching within a percentage point of its record high set in September. The move was due in part to a string of mostly positive earnings, while a decline in healthcare shares limited the advance.
Bank of America, Johnson & Johnson, BlackRock, UnitedHealth and others posted quarterly earnings that surpassed consensus expectations. Nonetheless, trading following the reports was mixed.
With reporting season in full swing, the consensus currently is for first quarter S&P 500 earnings to have declined 1.8 percent year-over-year, according to Refinitiv data. While a solid improvement over recent estimates, it would still mark the first earnings decline since 2016.
Of the 42 S&P 500 companies that have posted thus far, 81 percent have exceeded consensus, compared with the 65 percent average beat rate going back to 1994.
Johnson & Johnson came in above analyst estimates, mostly attributable to sales growth at its pharmaceutical division, sending its shares 1.1 percent higher.
UnitedHealth, which also reported better-than-anticipated first-quarter earnings and raised its 2019 earnings forecast, fell 4.0 percent, likely due to regulatory worries. The stock was the worst drag on the Dow.
Rivals Anthem and Cigna also slid, falling 6.8 percent and 7.8 percent, respectively. S&P 500’s Healthcare Index closed down 2.0 percent
The second largest U.S. bank by assets, Bank of America missed revenue expectations, but its earnings exceeded forecasts due to cost cutting and loan increases. Its shares rose 0.1 percent.
BlackRock gained 3.2 percent after well exceeding Street expectations and taking in $65 billion in new investor cash in the first quarter.
Of the 11 major sectors in the S&P 500 index, seven ended the session in the black. Financials were the largest percentage gainers, rising 1.4 percent.
Netflix fell in after-hours trading after it posted first quarter results.
IBM also fell after the close, following the blue-chip tech company’s earnings report.
Approximately 6.57 billion shares changed hands on the major domestic equity exchanges, as compared to the 6.87 billion share average over the past 20 trading days.
Manufacturing Output Unchanged
Manufacturing output was unchanged in March after two straight monthly declines, resulting in the first quarterly drop in production in two years.
The weakness in manufacturing reported by the Federal Reserve on Tuesday is in tandem with a moderation in the broader. Soft manufacturing and slowing economic growth reflect the ebbing stimulus from a $1.5 trillion tax cut package and supply chain disruptions caused by Washington’s trade war with China.
Manufacturing output last month was restrained by weak motor vehicle and wood products production after falling 0.3 percent in February.
Production at factories dropped at a 1.1 percent annualized rate in the first quarter. That was the first quarterly drop since the third quarter of 2017 and followed a 1.7 percent pace of increase in the October-December period.
Motor vehicles and parts production dropped 2.5 percent in March after increasing 2.3 percent in February. An inventory overhang in the automobile sector is weighing on production.
Factory employment declined in March for the first time since July 2017. Excluding motor vehicles and parts, manufacturing output rose 0.2 percent in March, lifted by increases in the production of primary metals, and computer and electronic products, after falling 0.5 percent in February.
While that offered some optimism for manufacturing, the outlook for the sector, which accounts for about 12 percent of the economy, is cloudy. A survey from the New York Fed on Monday showed a measure of future business activity in New York state dropped to a more than three-year low in April, with companies concerned about new orders and shipments.
Manufacturing is also being held back by last year’s rise in the dollar and softening global economic growth, which are hurting exports. The sector could be further strained by Boeing’s decision to stop deliveries and cut back production of its troubled 737 MAX aircraft. The MAX planes have been grounded indefinitely following two deadly crashes.
While manufacturing is struggling, there are signs of green shoots in the housing market after activity contracted last year. A survey from the National Association of Home Builders on Tuesday showed confidence among single-family homebuilders edged up this month amid optimism over sales conditions and buyer traffic.
The housing market is getting a lift from a fall in mortgage rates after they surged last year. But housing accounts for a small fraction of the economy, meaning the recovery in activity is unlikely to have a huge impact on gross domestic product.
Growth forecasts for the first quarter are between a 1.5 percent and 2.3 percent annualized rate. The economy grew at a moderate 2.2 percent rate in the fourth quarter after expanding at a brisk 3.4 percent pace in the July-September period.
The flat manufacturing output in March, together with a 0.8 percent drop in mining, led to a 0.1 percent dip in industrial production. Industrial output edged up 0.1 percent in February. It fell at a 0.3 percent rate in the first quarter after rising at a 4.0 percent pace in the fourth quarter.
Mining production was unchanged in February. Oil and gas well drilling rebounded 0.3 percent in March after tumbling 1.3 percent in February. Utilities output gained 0.2 percent in March after surging 3.7 percent the prior month.
Capacity utilization for the manufacturing sector, a measure of how fully firms are using their resources, slipped to 76.4 percent last month, the lowest in a year, from 76.5 percent in February. Overall capacity use for the industrial sector fell to 78.8 percent from 79.0 percent in February.
It is 1.0 percentage point below its 1972-2017 average. Officials at the Fed tend to look at capacity use measures for signals of how much “slack” remains in the economy — how far growth has room to run before it becomes inflationary.