Asian markets declined Monday amid concerns the outbreak of swine flu in North America will hurt the recovery in the global economy.  Shares of airlines and transport companies declined as concerned investors cut risky positions.  Travel and leisure stocks also took a hit.  The Hang Seng index in Hong Kong slumped 418.43 points, or 2.7%, to 14,840.42.  South Korea’s Kospi lost 1.1% to close at 1,339.83.  The Nikkei Stock Average in Japan edged up 18.35 points, or 0.2%, to close at 8,726.34.  In Mexico, the swine flu death toll rose to 103 as governments around the world rushed to control the spread of a possible flu pandemic.

On Friday, U.S. markets advanced with the Nasdaq ending higher for the seventh straight week, driven by several better-than-expected tech quarterly earnings reports.  The DJIA and S&P 500 ended the week slightly lower, trimming six-weeks of gains. On the DJIA, shares edged 0.7% lower for an 8.0% year-to-date decline; the decline on the S&P 500 totaled 0.4%, bringing its year-to-date fall to 4.1%.  The Nasdaq, however, ended the week 1.3% up for a 7.4% year-to-date gain.

Although company remarks failed to assure demand situation is improving, the steady stream of key earnings reports, nevertheless, beat the pessimistic Wall Street assumptions. Boosting the sentiment further were signals of a cyclical upturn and signs the rate of contraction is slowing, with commodity prices up, credit spreads improving, growth in money supply and a steepening yield curve.

Among sector gains last week: basic material shares rose 2.2%, taking their year-to-date jump to 9.4%; industrials added 1.9%; oil and gas edged up 0.7%; tech sector shares rose 1.4%, sending its shares to a 16.3% surge on the year; and consumer services gained 0.1% for a 3.4% year-to-date gain. With investors resorting to risk taking, defensive plays came under pressure, with health care, down 3.6% last week (-9.4% in 2009), utilities off 2.5% (-13.4% in 2009), telecommunications 2.3% lower (-6.9% in 2009) and consumer goods off 1.2% (-6.2% in 2009).

Among 143 S&P companies that reported earnings last week, eighty beat earnings estimates while 40 reported earnings that were below expectations; thirty revenue projections were exceeded and 70 missed. Of the thirteen DJIA components that reported results during the week, 10 either matched or exceeded Street expectations.  Of the notables, Microsoft (NASDAQ:MSFT) CFO’s news that the launch of its new operating system is on schedule masked pessimistic remarks of “a broad-based slowdown across virtually all product lines and geographies.” The CEO of American Express (NYSE:AXP), which reported better-than-expected results, warned the firm remains “very cautious about the economic outlook.” Upside surprises from Apple (NASDAQ:AAPL), eBay (NASDAQ:EBAY) and Amazon.com (NASDAQ:AMZN) fueled assumptions the decline in consumer spending may be abating. Moreover, McDonald’s (NYSE:MCD) CEO Skinner noted April same-store-sales “at least as strong as or better than first quarter sales in every area of the world.”  Texas Instruments’ (NYSE:TXN) better-than-expected results indicated demand beginning to stabilize.

Wednesday will offer the week’s economic posts of most market-moving potential, the advance first quarter GDP stats and the FOMC rate decision.  The decline in GDP is widely expected to moderate from the fourth quarter’s sharp 6.3% decline to a 4.9% decrease. Looking forward, however, traders will search for any Fed indication of signs of stabilization and a declining rate of recession. The calendar also covers a look at consumer confidence in April in reports on Tuesday and Friday; the housing market in February S&P/Case Shiller home prices on Tuesday, personal income and spending Thursday; factory orders, the ISM Index and vehicle sales on Friday. Investors may search for hints of any leakage on financials’ stress test results, with Friday’s post of white page assumptions leading to positive survival assumptions for most US banks.

Zacks Investment Research
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