News that the economy skidded to a near halt in the first three months of the year helped push the US stock market lower yesterday.
Battered by harsh weather, plunging exports and sharp cutbacks in oil and gas drilling, the overall economy grew at a barely discernible annual rate of 0.2% in the first quarter, the commerce department reported.
It was the poorest showing in a year and down from 2.2% growth in the fourth quarter.
Stocks stayed lower after the Federal Reserve downgraded its assessment of the economy and appeared no closer to raising its benchmark interest rate from close to zero.
The stock market, trading close to record levels, is struggling to maintain its upward momentum at the start of the seventh year of a bull-market run.
The S&P 500 index has gained only 2.3% in the first four months of the year and is fluctuating between small gains and losses. That is a trend that may continue for a while yet.
The Standard & Poor’s 500 index fell 7.91 points, or 0.4%, to 2,106.85. The Dow Jones industrial average dropped 74.61 points, or 0.4%, or 18,035.53 points. The Nasdaq declined 31.78 points, or 0.6%, to 5,023.64.
In addition to news from the Fed and on the economy, investors were also looking at the latest corporate earnings.
Starwood Hotels and Resorts surged after the company’s board of directors said it would explore a “full range” of strategic and financial options for the company.
Starwood also reported earnings that surpassed analysts’ expectations. The stock climbed 6.73 dollars, or 8.3%, to 87.53 dollars.
Buffalo Wild Wings slumped 24.35 dollars, or 12.8%, to 160.25 dollars after the company reported disappointing first-quarter results.
The company said its net income and revenue grew. But the price of chicken wings surged and Buffalo Wild Wings’ costs were also boosted by the chain’s expansion.
Overall, company earnings are coming in better than had been expected.
Just over half of the companies in the S&P 500 have now reported their first-quarter numbers, and analysts are forecasting that average earnings will grow by just 0.2%, according to data from S&P Capital IQ.
While that is a sharp slowdown from a 7.8% growth rate in the fourth quarter of last year, it is much better than the decline of 3.1% that analysts had expected at the start of the month.
That slowdown is being driven by a big drop in earnings at energy companies, caused by a plunge in the price of oil, as well as a stronger dollar, which is eating away at the value of overseas sales for global companies based in the US.
Most investors remain confident that many of the factors weighing on the economy are transitory, and that growth will accelerate in the second quarter, said Russ Koesterich, chief investment strategist at BlackRock.
However, if that scenario does not play out, trading could become more volatile in the second half of the year.
“The narrative is that the economy rebounds in the second quarter and earnings rebound with it,” Mr Koesterich said.
“If it wasn’t all about the weather or temporary factors … then that is where you might get some more volatility this summer.”
In other corporate news, shares of Salesforce.com surged as investors reacted to a report that the business software company had been approached by an unidentified suitor.
A Bloomberg story, citing unnamed people, stirred speculation that Salesforce might be sold to rival Oracle in a deal that could be worth 50 billion dollars. Salesforce jumped 7.76 dollars, or 11.6%, to 74.65 dollars.
In currency trading, the euro climbed to 1.1116 dollars from 1.0972 dollars, after the weaker-than-forecast report on the US economy.
That is the currency’s highest level against the dollar in almost two months. The dollar rose to 118.98 yen from 118.82 yen late on Tuesday
In energy trading, US benchmark crude oil rose 1.52 dollars to 58.58 dollars a barrel in New York, its highest closing price of the year. Brent crude, the international benchmark for oil, climbed 1.20 dollars to 65.84 dollars.