Stock Prices Fall on Wall Street, European Indices Rise

Last week on Wall Street, stock prices fell as investors are concerned about high yields on U.S. government bonds, while European exchanges saw indices rise due to better-than-expected corporate earnings.

On Wall Street, the Dow Jones weakened by 0.6 percent to 24,311 points, while the S&P 500 slipped by 0.05 percent to 2,669 points, and the Nasdaq index fell by 0.4 percent to 7,119 points.

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The first decline of these indices after two weeks of growth is a result of investor concerns regarding high yields on U.S. government bonds, as the strengthening inflation, driven by rising oil prices, could prompt the U.S. Fed to accelerate the pace of interest rate hikes.

Yields on 10-year U.S. government bonds are around 3 percent, the highest level in four years, which is not favorable for stock markets as it increases borrowing costs for companies and could lead investors to redirect some of their funds from stocks to bonds.

Investors were also disappointed by a weaker-than-expected report on U.S. economic growth in the first quarter.

Gross Domestic Product (GDP) strengthened by 2.3 percent year-on-year in the first quarter, significantly slower compared to the 2.9 percent growth in the previous quarter.

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This is a consequence of the weakest growth in personal consumption in nearly five years. However, analysts believe this slowdown is temporary as tax changes and wage growth should stimulate consumption in the future.

However, the growth in consumption and wages could spur inflation, which is already rising due to strong increases in oil prices.

On the other hand, the largest global stock market is supported by better-than-expected quarterly earnings results from most companies.

So far, more than 50 percent of companies in the S&P 500 index have reported earnings, with 79.4 percent achieving higher profits than expected.

As a result, analysts in a Reuters survey estimate that earnings for companies in the S&P 500 index rose by 24.6 percent in the last quarter compared to the same period last year, while two weeks ago they expected an increase of 18.4 percent.

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If this trend continues, it will be the largest earnings jump in the last seven years, supported by strong global economic growth and tax changes in the U.S. at the beginning of the year.

European companies are also reporting better-than-expected results.

So far, about a quarter of companies in the MSCI EMU index have published business reports, with 60 percent recording earnings that are better or in line with expectations.

Analysts in a Reuters survey estimate that earnings for European companies in the first quarter were more than 15 percent better compared to the same period last year.

Positive influences on European markets also came from the European Central Bank (ECB) which, at its regular meeting on Thursday, kept key interest rates, the bond purchase program, and future guidance unchanged, as financial markets expected.

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“Regarding unconventional monetary policy measures, the Governing Council confirms that net purchases of securities at the current monthly amount of 30 billion euros will continue until the end of September 2018, but also longer if necessary,” the central bank announced.

Thanks to this, stock prices on European exchanges rose last week. The London FTSE index strengthened by 1.8 percent to 7,502 points, while the Frankfurt DAX rose by 0.3 percent to 12,580 points, and the Paris CAC increased by 1.3 percent to 5,483 points.

On the Tokyo Stock Exchange, the Nikkei index strengthened by 1.4 percent to 22,467 points, marking the fifth consecutive week of growth.