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Earnings, M&A News May Trigger Buying Interest on Wall Street

By Investors Hub

Early buying interest may be generated in reaction to upbeat earnings news, with fast food giant McDonald?s (MCD) moving sharply higher in pre-market trading after reporting better than expected first quarter results.

This is because the major U.S. index futures are pointing to a higher opening on Monday following the lackluster performance seen last Friday.

The markets may also benefit from news on the merger-and-acquisition front, as T-Mobile (TMUS) announced an agreement to buy Sprint (S) for $26 billion.

Overall trading activity may be somewhat subdued, however, as traders look ahead to several key economic events later this week.

Stocks showed a lack of direction over the course of the trading day on Friday following the rally seen in the previous session. The major averages spent the day bouncing back and forth across the unchanged line before closing roughly flat.

The major averages ended the session on opposite sides of the unchanged line. While the Dow edged down 11.15 points or 0.1 percent to 24,311.19, the Nasdaq crept up 1.12 points or less than a tenth of a percent to 7,119.80 and the S&P 500 inched up 2.97 points or 0.1 percent to 2,669.91.

For the week, the S&P 500 closed marginally lower, while the Dow fell by 0.6 percent and the Nasdaq dipped by 0.4 percent.

The choppy trading on Wall Street came as traders digested a mixed batch of earnings news from several big-name companies.

While tech giants Amazon (AMZN), Microsoft (MSFT), and Intel (INTC) reported better than expected quarterly results, energy giant ExxonMobil (XOM) reported first quarter earnings that came in below analyst estimates.

Uncertainty about the outlook for interest rates may also have kept traders on the sidelines following the release of a Commerce Department reporting showing stronger than expected economic growth in the first quarter.

The report showed GDP growth slowed to 2.3 percent in the first quarter from 2.9 percent in the fourth quarter, although the increase still exceeded economist estimates for 2.0 percent growth.

The slowdown in GDP growth came as consumer spending rose by just 1.1 percent in the first quarter compared to the 4.0 percent jump seen in the fourth quarter.

Meanwhile, a reading on core consumer prices, which exclude food and energy prices, showed that the pace of price growth surged up to 2.5 percent in the first quarter from 1.9 percent in the fourth quarter.

“With clear signs that inflation is rising pretty rapidly now, the Fed will need to tighten more aggressively this year and that will lay the seeds for an economic slowdown starting next year,” said Paul Ashworth, Chief U.S. Economist at Capital Economics.

A separate report from the University of Michigan showed consumer sentiment in the deteriorated by less than initially estimated in the month of April.

The report said the consumer sentiment index for April was upwardly revised to 98.8 from the preliminary reading of 97.8.

The upwardly revised reading exceeded economist estimates of 98.0 but still came in below the final March reading of 101.4.

Reflecting the lackluster performance by the broader markets, most of the major sectors ended the day showing only modest moves.

Retail stocks saw considerable strength, however, with the Dow Jones Retail Index climbing by 1.6 percent. With the gain, the index reached its best closing level in over a month.

Online retail giant Amazon led the retail sector higher after reporting first quarter results that exceeded analyst estimates on both the top and bottom lines.

Significant strength was also visible among telecom stocks, as reflected by the 1.3 percent gain posted by the NYSE Arca Telecom Index. The index is bounced off its lowest closing level in over four months.

While real estate and transportation stocks also saw notable strength, steel stocks showed a substantial move to the downside, dragging the NYSE Arca Steel Index down by 2.1 percent. The index pulled back off its best closing level in well over a month.

U.S. Steel (X) led the sector lower after reporting better than expected first quarter earnings but providing disappointing guidance for the current quarter.

Energy stocks also saw considerable weakness on the day amid a modest decrease by the price of crude oil.

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Modupe Gbadeyanka is a fast-rising journalist with Business Post Nigeria. Her passion for journalism is amazing. She is willing to learn more with a view to becoming one of the best pen-pushers in Nigeria. Her role models are the duo of CNN's Richard Quest and Christiane Amanpour.

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