Stocks edge down, US yields climb after PMI data

By Chuck Mikolajczak

NEW YORK (Reuters) - A gauge of global stocks declined for a third straight day on Friday as investors weighed the latest round of corporate earnings results, while longer-dated U.S. yields were higher after a gauge of business activity climbed.

On Wall Street, the S&P 500 closed slightly higher, with the consumer staples sector, up 0.75%, as Procter & Gamble (NYSE:PG) climbed 3.46% after the maker of products such as toothpaste and laundry detergent beat quarterly estimates and raised its sales outlook.

Amazon (NASDAQ:AMZN) shares rallied to close at its highest level in over two months following an upbeat report from a research firm about the online retailers North America business. Amazon shares were last up 3.03%, lifting the consumer discretionary sector by 1.20% as the best performing on the session.

But the materials sector was weak, down 0.91%, as Albermarle plunged 10.00%, suffering its biggest one-day percentage drop in 14 months as the worst performing S&P 500 component, after Chile announced plans to nationalize its lithium industry.

Of the 88 S&P 500 companies that have reported quarterly earnings through Friday, 76.1% have topped expectations, according to Refinitiv data, well above the 66% average since 1994 and slightly better than the 74% over the past four quarters.

Earnings are expected to decline 4.7% from the year-ago period, an improvement from the 5.1% decline recorded on April 1.

"The market has been basically in a bit of a holding pattern ahead of big tech earnings next week,” said Keith Lerner, co-chief investment officer at Truist Advisory Services. "There is a tug of war between good and bad economic data, good and bad earnings data.”

The Dow Jones Industrial Average rose 22.34 points, or 0.07%, to 33,808.96, the S&P 500 gained 3.73 points, or 0.09%, to 4,133.52 and the Nasdaq Composite added 12.90 points, or 0.11%, to 12,072.46.

Earnings from megacap names such as Microsoft Corp (NASDAQ:MSFT) and Google parent Alphabet (NASDAQ:GOOGL) Inc are scheduled for next week.

Equities showed little reaction to economic data in the form of S&P Global (NYSE:SPGI)'s flash U.S. Composite PMI Output Index, which said U.S. business activity accelerated to an 11-month high in April.

GRAPHIC: Flash PMI https://www.reuters.com/graphics/USA-STOCKS/gdvzqbyzopw/flashpmi.png

Economic data in the euro zone also showed the region's economic recovery unexpectedly gained steam this month, with HCOB's flash Composite Purchasing Managers' Index climbing to an 11-month high.

European shares closed higher, and the STOXX 600 notched its fifth straight week of gains.

The pan-European STOXX 600 index rose 0.34% and MSCI's gauge of stocks across the globe shed 0.03%. MSCI's index was on track for a third straight session of declines, its longest streak in nearly six weeks.

This week, economic reports have largely pointed to a slowing U.S. economy, although comments from a host of Fed officials have indicated the central bank is still likely to hike by 25 basis points at its May meeting. Markets are currently pricing in an 85.4% chance of a 25 basis point hike at the May policy announcement, according to CME's FedWatch Tool.

"It’s very, very logical for the Fed to look at this situation as one in which they need to re-establish their credibility in fighting inflation, and in order to re-establish their credibility they have to err on the side of being tougher on inflation even at the expense of the economy," said Jason Pride, chief of investment strategy and research at Glenmede in Philadelphia.

While stocks initially showed little reaction to the PMI data, U.S. Treasury yields moved higher.

The yield on 10-year Treasury notes was up 2.3 basis points to 3.568%.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 0.7 basis points at 4.177%.

In currencies, the dollar was largely unchanged as gains from the PMI report faded. The dollar index fell 0.09%, with the euro up 0.21% to $1.099. The greenback was on track for its first weekly gain after five straight declines, its longest weekly run of weakening in nearly three years as investors have increased expectations the Fed will raise rates next month.

The Japanese yen strengthened 0.11% versus the greenback to 134.09 per dollar, while Sterling was last trading at $1.2443, flat on the day.

Crude prices were up modestly on the day, but fell for the week, as concerns about rate hikes and a looming recession weighed.

U.S. crude settled up 0.65% at $77.87 per barrel and Brent settled at $81.66, up 0.69% on the day.