Dow ekes out slight gain as broader market struggles

Stocks on Wall Street continue to struggle to gain traction amid signs of weakening economic data, rising interest rates and lacklustre corporate earnings reports.

The blue-chip Dow Jones Industrial Average eked out a slight gain in a session where it had plunged as much as 394 points. It closed up 5.17 points, or 0.02%, up at 23,930.15, its third gain in 12 trading days.

The S&P 500 declined 0.2% to 2629.73, its second session of losses, while the Nasdaq Composite fell 0.2% to 7088.15.

The Dow has traded in a span of about 850 points over the past two month since losing more than 10% of its value over nine sessions in January and February. It remains 10% below the high set on January 26.

Several mediocre earnings reports contributed to the weaker sentiment at a time when even upbeat profit results from widely held stocks such as Apple have failed to spark a broader rally. 

Services sector index falls
Economic news didn't help. The Institute for Supply Management said its nonmanufacturing index – tracking a wide range of US industries such as healthcare, finance, construction and agriculture – slipped to 56.8 in April from 58.8 in March and missed economists’ expectations.

While a reading above 50 indicates expansion, survey respondents expressed some concern about the uncertainty around tariffs and the effect on the cost of goods.

Apple‘s market-moving power took a serious hit after it reported better-than-expected earnings. While its shares are up 9% this week, the broader S&P 500 tech sector has added just 1.1% over the same time.

Investors have lost confidence in the sector’s ability to excite the market. An example is Tesla, which is struggling to ramp up production and face questions over the safety of their technology.

The shares slumped 5.5% after it burned through cash faster than expected and chief executive Elon Musk sparred with analysts on a conference call.

Cardinal Health shares plunged 21% after the wholesale drug supplier reported a lower-than-expected profit for the first three months of the year and lowered its outlook for the remainder of 2018 due to performance issues.

Another big decliner on the S&P 500 was American International Group, which reported first-quarter earnings that missed analysts’ expectations. Shares dropped 6.6% and helped drag the S&P 500’s financial sector down nearly 1%.

Interest rate fears
Investors and analysts continue this week’s US Federal Reserve statement, which sent stocks lower late on Wednesday.

Its plan to proceed with gradual interest rate increases has forced investors to re-evaluate their allocations between stocks and bonds, while a strengthening dollar has pressured US multinational companies in recent weeks.

“Protecting against inflation is one of the key things to do,” Jeff Layman, chief investment officer of BKD Wealth Advisors says. “The higher interest rates go, the more difficult it is for the valuation of stocks, and we’re already at the higher end of a normal range.”

Some analysts have pointed to a combination of the Fed’s conviction in pushing up interest rates, its lack of concrete details on plans for 2018 and its moderate commentary on the strength of the economy as a trigger for short-term weakness in stocks.

“It’s a factor that will cause stock returns to fall,” Mr Layman says. “Investors need to reset expectations.”

US government bond prices edged higher as traders reacted to softer-than-expected eurozone inflation data. The April increase of 0.7%, excluding energy, food, alcohol and tobacco, was below the 0.9% consensus forecast.

The benchmark 10-year Treasury note was 2.929% compared with 2.964% on Wednesday.

“On the global front, the feeling is that growth may not be as strong as it was a couple of months ago, and as a result, inflationary pressures may not be as strong,” says Gary Pollack, head of fixed-income trading at Deutsche Bank AG’s private wealth management unit.

The Stoxx Europe 600 fell 0.7%. France’s CAC 40 lost 0.5%, Germany’s DAX declined 0.9% and the UK’s FTSE 100 fell 0.5%.