U.S. markets rose on Friday on better-than-expected earnings from Amazon. The S&P 500 rose 3.38 points or 2.24% to 1,403.36. The Dow gained 23.69 points or 0.18% to 13,228.31. For the week, the S&P 500 gained 1.8% for its best week in a month, as strong corporate earnings overshadowed concerns about the euro zone. The S&P 500 also closed above the psychologically-important 1,400 level.
U.S. First Quarter Growth Disappoints
On Friday, the U.S. Commerce Department announced that first quarter GDP growth was 2.2%, which was lower than the 2.5% the market expected. However, it was higher than the 1.5% that economists expected at the beginning of the year, which prevented the market from falling on the news. On Thursday, U.S. initial jobless claims also disappointed the market, when it fell by only 1,000, to 388,000.
Spain Downgraded by S&P
On Friday, S&P announced that it is downgrading Spain's rating by two notches, from A to BBB+. S&P has also placed Spain's rating on negative watch, and stated that Spain's banking system was too reliant on government funding. Meanwhile, Italy's bond auctions disappointed investors, with the yield on its 10-year debt at 5.84%, which was 60 basis points above last month's auction.
On Wednesday, after the Fed's much-anticipated meeting, it announced it is continuing its stance of keeping interest rates at the current level until the end of 2014. However, it did not mention QE3.
UK Slips Into Double-Dip Recession
Also on Wednesday, the UK announced that first quarter GDP shrank by 0.2%, which was weaker than the 0.1% growth the market expected. With the negative 0.3% growth in the fourth quarter, the UK is now officially in a double-dip recession.
Apple Boosts Markets
On Wednesday, U.S. markets received a boost from Apple's earnings. The company's profits rose 94% from last year to $11.6 billion. EPS was $12.30, higher than the $9.94 the market expected.
Markets Tumble on Netherlands and France
On Monday, markets tumbled when the Prime Minister of the Netherlands resigned due to a disagreement in parliament over austerity measures. In addition, with the second round of federal elections in France about to get underway, investors faced a large degree of uncertainty. As a result, the yield on Spain's 10-year government bonds rose above 6%, and stock indices in Europe fell more than 1%.
Looking Ahead to Next Week
Investors will be paying close attention to the U.S. March jobs report on Friday. On Wednesday, the ADP jobs report will be announced. In addition, investors will continue to pay attention to corporate earnings. So far, 57% of S&P 500 companies have posted earnings. Next week, companies including Visa, Kraft and Prudential will be reporting results.
With the situation in Spain showing no signs of improvement, it will take stronger-than-expected earnings just to keep the market from falling. If the yield on Spanish debt rises, then the market will likely fall regardless of earnings results. With the UK now in a double-dip recession, it will likely conduct quantitative easing, which should boost the prices of gold and silver.