US stocks registered their first decline in five weeks as investors assessed the outcome of Obama Administration’s plans for an overhaul of financial regulations.  A fall in crude prices resulted in a sell off in energy stocks, hurting investor sentiments.  The S&P 500, which jumped to a high of 946.21 the previous week, lost almost 25 points during the week to close at 921.23 on Friday.  However, Nasdaq ended the day with a 1.1% gain after Microsoft (NASDAQ:MSFT) was viewed positively by some brokers.  On a weekly basis, Nasdaq lost 1.7% and the Dow Jones Industrial Average, which slipped 0.2% on Friday, closed the week 2.95% lower.  With the quadruple witching of options expirations on Friday, volume on the NYSE jumped to 2.1 billion shares.

Investors this week are likely to take leads from data on housing, durable orders, and final GDP numbers for the first quarter.  Also, a change in FOMC directives is expected to have an impact on stock prices.  The World Bank’s projection that the world economy will shrink by 2.9% is likely to drive sentiments this morning.  The bank had earlier forecast a 1.7% contraction. 

Among S&P sector groupings, all but one recorded declines during the week.  Basic materials stocks led the decliners with a 7.1% fall, followed by oil and gas, off 6.9%, and industrials, down 5.2%.  Only healthcare sector finished the week higher, with a 2% advance.  E*Trade Financial Corp (NASDAQ:ETFC) declined 36% to $1.26 after the online brokerage sold $478.5 million to shore up its capital base.  Oil prices went below $70, hurt by expectations of seasonal declines in US gasoline prices.  Exxon (NYSE:XOM) declined 3.7% to $71.05 and Freeport-McMoRan Copper & Gold Inc (NYSE:FCX) plunged 13% amid speculation that Chinese demand for copper is falling.

According to Thomson Reuters, second quarter earnings are likely to decline about 35% y/y, with declines likely to continue before a sharp 190% jump in the final quarter. The S&P forward-looking price-earnings multiple currently stands at about 15 times earnings, up from about 12 times in the first quarter, with the rise largely attributed to price gains rather than rising earnings numbers.

The two-day FOMC meeting, which starts on Tuesday, is unlikely to reveal a major policy shift and is likely to hold rates of 0-0.25% steady.  The week’s planned $104 billion note auctions will also place pressure on yields, raising fears on inflation as well as a crushed recovery.

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