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 While first-quarter earnings have topped expectations, revenue has
fallen, with the biggest drops in the energy sector. U.S. data,
including on economic growth, have been weak, but are seen as making
the Federal Reserve less likely to raise interest rates soon, a view
that has lifted market sentiment.
"There are a lot of offsetting trends in the market, which is
causing a lot of choppy volatility," said Michael Mullaney, chief
investment officer at Fiduciary Trust Co in Boston.
"I don't see anything on the horizon that will get people to buy
stocks in droves, including the payroll report."
The S&P 500 is about 1 percent away from the record close hit last
Friday, when the Nasdaq composite index <.IXIC> also hit a record -
its first since 2000. At these lofty levels, markets are vulnerable
to a sell-off.
In a rare week in which both stocks and bonds weakened, traders may
reconsider whether global yields will fall much further, given that
the two-year German yield has been running below zero since last
August. As yields rose in Europe this week, U.S. benchmark rates
followed suit.
Investors have been willing to leave the safe haven of bonds for
bigger returns in stocks. But this week's bond market selloff has
boosted yields, part of the reason some of the week's biggest losers
include utilities and consumer staples companies that pay higher
dividends.
Some movement in Greece debt talks and less worrisome regional
inflation data this week caused traders to reduce bets the European
Central Bank might need to inject more stimulus. This led to the
dumping of German Bunds, U.S. Treasuries and British Gilts.
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"It appears there's finally a revaluation going on," said Jack
Ablin, chief investment officer at BMO Private Bank in Chicago.
"Equities are expensive relative to their history; the only market
that makes them appear cheap is bonds."
Relative to junk bonds, the earnings yield on the S&P 500 - the
inverse of the P/E ratio, which is used for valuation comparisons
with bonds - is around 5.8 percent, data showed.
That is below the yield to maturity on junk bonds, of around 6.45
percent, indicating that stocks have a worse value than the riskiest
corporate bonds.
About 213,000 jobs are seen having been added in April, after an add
of 126,000 in March. That was the weakest reading since December
2013, hurt by both weak crude oil prices and a strong U.S. dollar.
(Reporting by Ryan Vlastelica; Additional reporting by Richard
Leong; Editing by Richard Chang)
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