The major equity indexes ended their four-day winning streak on Thursday as trade anxieties resurfaced, and investors sold risk ahead of the long Labor Day holiday weekend.
Investor sentiment darkened on the prospect that a new round of tariffs on Chinese goods may likely take effect in September. According to Bloomberg, the Administration wants to move ahead next week on a plan to impose tariffs on Chinese imports worth $200 billion.
The CBOE Volatility Index rose to a near two-week high in a low-volume, pre-holiday session, closing at 13.53.
Apple closed at a record high, rising 0.9 percent following news that it would unveil its latest iPhones on Sept. 12.
Amazon rose 0.2 percent, closing above $2,000 for the first time and edging the company closer to becoming the second domestic company after Apple to reach $1 trillion in market value.
Of the 11 major sectors of the S&P 500, only the utilities index advanced.
Campbell Soup fell 2.1 percent after it announced plans to sell its international and fresh refrigerated-foods units and left open the possibility of putting the whole company up for sale.
Shares of Abercrombie & Fitch were down 17.2 percent after the apparel retailer missed quarterly same-store sales estimates.
In economic news, the Federal Reserve’s preferred inflation gauge, the core PCE price index, posted a 2 percent year-on-year increase, hitting the central bank’s target and boosting the likelihood of additional rate hikes this year.
Domestic crude oil rose 0.9 percent to $70.15 per barrel was at Brent $77.87, up 0.53 percent, as crude shipments from Iran and Venezuela were disrupted and our domestic crude inventories fell.
Approximately 5.99 billion shares changed hands on the major domestic equity exchanges, as compared to a 6.09 billion share average over the last 20 trading days.
Claims for Unemployment Benefits Rise
The number of claims for unemployment benefits rose last week, but the underlying trend continued to point to a robust labor market that should keep the economy on a strong growth path this year.
A report by the Labor Department on Thursday morning indicated that initial claims for state unemployment benefits increased by 3,000 claims to a seasonally adjusted 213,000 claims for the week ended Aug. 25. Data for the prior week was unrevised. Claims had declined for three straight weeks.
The Labor Department said only claims for Maine were estimated last week. The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell by 1,500 claims last week to 212,250 claims, the lowest level since December 1969.
There are no signs so far in the claims data that the Administration’s protectionist trade policy, which has led to an escalating trade war with China and tit-for-tat import tariffs with other trading partners, including the European Union, Canada and Mexico, is hurting the labor market.
The jobs market, which is viewed as being near or at full employment, is seeing steadily rising wage growth, which in turn is helping to support both consumer spending and aids the overall economy.
Thursday’s claims report also showed the number of people receiving benefits after an initial week of aid dropped by 20,000 claims to 1.71 million claims for the week ended Aug. 18. The four-week moving average of the so-called continuing claims fell by 4,500 claims to 1.73 million claims.
The continuing claims data covered the week of the household survey from which August’s unemployment rate will be derived. The four-week average of continuing claims declined by 15,000 claims between the July and August survey weeks, suggesting an improvement in the unemployment rate. The jobless rate was at 3.9 percent in July.
Consumer Spending Rises
Consumer spending increased solidly in July, pointing to strong economic growth early in the third quarter, while a measure of underlying inflation hit the Federal Reserve’s 2 percent target for the third time this year. Strong domestic demand, rising inflation and a tightening jobs market likely will keep the U.S. central bank on course to increase interest rates for a third time this year in September.
The Commerce Department said consumer spending, which accounts for more than two-thirds of all economic activity, rose 0.4 percent last month after advancing by the same margin in June. Households spent more at restaurants and on accommodation last month.
There was also an increase in spending on prescription medication. Economists polled by Reuters had forecast consumer spending rising 0.4 percent in July.
With demand strong last month, prices continued their gradual upward trend. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components rose 0.2 percent after edging up 0.1 percent in June.
That lifted the year-on-year increase in the so-called core PCE price index to 2.0 percent from 1.9 percent in June. The core PCE index is the Fed’s preferred inflation measure. It hit the Fed’s 2 percent inflation target in March for the first time since April 2012.
Strong consumer spending helped fire up economic growth in the second quarter, with gross domestic product rising at a 4.2 percent annualized rate, the fastest in nearly four years and almost double the 2.2 percent pace notched in the January-March quarter.
Solid consumer spending should blunt some of the impact on the economy from an anticipated widening in the trade deficit and weakness in the housing market in the third quarter. Recent data showed a sharp rise in the goods trade deficit in July as well as further declines in home sales and a moderate rise in homebuilding last month.
Consumer spending, which grew at a 3.8 percent annualized rate in the April-June period following a pedestrian 0.5 percent pace in the first quarter, is being supported by the labor market, which is viewed as being near or at full employment.
Note that tariffs could undermine business spending, disrupt the supply chain as well as raise prices of some goods. In July, spending on goods rose 0.2 percent after slipping 0.1 percent in June. Outlays on services increased 0.4 percent after surging 0.6 percent in the prior month.
Personal income rose 0.3 percent in July after increasing 0.4 percent in the prior month. Wages gained 0.4 percent. The saving rate slipped to 6.7 percent last month from 6.8 percent in June.