Stocks fell last week in response to underwhelming quarterly earnings reports and disappointing economic data from the U.S. and China. Large-capitalization stocks outperformed small-caps. Fears about slowing global growth clipped cyclical stocks in sectors such as energy, mining, and industrials, which had led the market since the Feb. 11 low.

The Dow Jones Industrial Average eased 33 points on the week, to 17,740.63. The Standard & Poor’s 500 index fell 8 to 2057.14. The Nasdaq gave up 0.8% to finish at 4736.16.

The Labor Department said Friday that nonfarm payrolls rose 160,000 last month, below expectations of 205,000 additions and the lowest number of jobs added in seven months. The unemployment rate was unchanged at 5%. Wages rose a strong 2.5%. Separately, Labor said U.S. first-quarter productivity, or output per worker, declined 1%.

Robert Pavlik, chief market strategist at Boston Private Wealth, says the primary cause of market weakness was a drop in April manufacturing numbers, both in the U.S. and China, released at the beginning of the week. Continued softness in the U.S. dollar had been helping cyclicals, many with sales generated overseas. But “all of a sudden,” he says, the falling dollar was taken by some investors as a sign of U.S. economic malaise.

The data showed three things, none of which are good for cyclicals, says Jim Tierney, portfolio manager at AllianceBernstein: “The U.S. economy is pretty darn sluggish; wage inflation is creeping higher; and productivity is terrible.”

The deterioration in first-quarter earnings—and not just among energy companies—was also a factor, says William Nichols, a managing director at Cantor Fitzgerald. Companies are beating earnings expectations that had been lowered, but the top line remains challenged, he adds.

Many companies are topping earnings-per-share expectations, but the percentage of those beating revenue estimates is 53%, below the five-year quarterly average.

Now that the reporting season is just about done, investors will turn their focus to the June 15-16 Federal Open Market Committee meeting. Although a rate hike isn’t expected, they’ll be parsing Fed officials’ commentary before then. The market could tread water ahead of the meeting.

(Source: Barrons Online)