Equities finished lower Friday as concerns over new COVID-19 outbreaks outweighed solid corporate earnings announcements. 

The consumer and utilities sectors outperformed, while technology and energy lagged on the day, with the final trading day of April likely reflecting some repositioning after another solid month in which equities continued to set new highs. 

There were no major moves in the bond market, with 10-year Treasury yields hovering above the 1.6 percent level. All told, this could be characterized as a soft finish to a week that contained predominantly positive economic and corporate earnings data.

On the economic front, data Friday showed that U.S. personal income rose 21 percent in March, which can be attributed in part to resurgent job growth, but primarily to the distribution of stimulus checks in the month. 

Going forward, income gains will be more modest, but still healthy as unemployment continues to come down and tighter labor-market conditions support wage gains. 

Accompanying the income data was the March read on personal spending, which was also up a solid 4 percent, consistent with Thursday’s first-quarter GDP report which showed that household consumption rose sharply. 

The March data revealed that spending on goods is still outpacing services spending, which can be attributed to ongoing restrictions that disproportionately impact industries like entertainment, dining, leisure and travel, whereas manufacturing and production rebounded much earlier in the recovery. 

As vaccine distribution continues and service industries bounce back, this might power the next leg of labor-market improvement and consumer spending.

Earnings continue to provide the positive undercurrent for equity markets. 

More than half of the S&P 500 has now reported first-quarter results, with more than 80 percent of companies beating estimates. 

So far, profit growth has averaged 57 percent, while revenue is up more than 11 percent, a signal of an improving economic backdrop. 

Valuations are elevated, reflecting lofty expectations for profit growth this year. 

Strong results thus far are an encouraging – if not necessary – element of stock-market support. At the same time, expect more moderate gains and higher volatility ahead, relative to the past year.

 

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