The major domestic equity indexes were slightly lower on Thursday as support from better-than-feared GDP data was countered by concerns about earnings and U.S.-China trade relations.
Trump walked out of his Vietnam summit with Kim Jong Un because of demands from the North Korean leader to lift U.S.-led sanctions.
Commerce Department indicated on Thursday that while the economy missed a 3 percent annual growth target for 2018, a better-than-expected fourth quarter pushed gross domestic product up 2.9 percent for the year.
The current consensus if for first-quarter earnings to fall 1.1 percent compared with Jan. 1 estimates for 5.3 percent growth, according to IBES data from Refinitiv.
The Street was unimpressed by White House economic adviser Larry Kudlow’s assurance Thursday that U.S.-China trade negotiations were moving forward after “fantastic” progress made last week.
The S&P and Dow both registered their third straight day of losses on Thursday.
Of the 11 major S&P 500 sectors, the materials sector was the worst percentage decliner with a 1.27 percent decline, while the energy sector was the second, with a 0.97 percent drop.
The healthcare sector fell 0.3 percent with drags from UnitedHealth, down 3 percent on concerns about the potential for a single-payer healthcare system.
Celgene fell 8.6 percent after activist investor Starboard Value said it will vote against Bristol-Myers Squibb’s proposed $74 billion acquisition of Celgene.
Approximately 8.22 billion shares changed hands on the major domestic equity exchanges, as compared to the 7.34 billion share average over the past 20 trading sessions.
The economy slowed less than expected during the fourth quarter amid solid consumer and business spending, leaving 2018 growth just shy of the Trump administration’s 3 percent annual target.
The Commerce Department indicated Thursday morning that the nation’s gross domestic product (GDP) increased at a 2.6 percent annualized rate in the fourth quarter after expanding at a 3.4 percent pace in the July-September period.
The economy grew 2.9 percent in 2018, aided by the $1.5 trillion tax cut and increased government spending. It was the best performance since 2015 and better than the 2.2 percent logged in 2017.
Despite the economy’s strong performance in the last quarter and in 2018 overall, there are indications of cracks in the ice, with most manufacturing measures weakening in January and February.
The labor market is also showing signs of cooling, with a report from the Labor Department on Thursday indicating the number of unemployment claims increasing to a 10-month high for the week ended Feb. 16.
The economy is slowing as the fiscal stimulus from the tax legislation fades. Growth is also being restrained by a trade war between the United States and China.
The slowdown comes at a time when the economy’s outlook is clouded by signs of weakening global demand and uncertainty over Britain’s departure from the European Union.
Combined these factors support the Federal Reserve’s “patient” stance towards raising interest rates further this year. Fed Chairman Jerome Powell reaffirmed the Fed’s position in his testimonies before lawmakers on Tuesday and Wednesday.
The fourth-quarter GDP report was delayed by a 35-day partial shutdown of the government that ended on Jan. 25, which affected the collection and processing of economic data.
The Commerce Department said while it could not quantify the full effects of the shutdown, it estimated the partial closure had subtracted about one-tenth of a percentage point from fourth-quarter GDP growth through “a reduction in the labor services supplied by federal employees and reduction in intermediate purchases of goods and services by nondefense agencies.”
Growth in consumer spending, which accounts for more than two-thirds of GDP activity, increased at a still strong 2.8 percent rate in the fourth quarter. Consumer spending grew at a robust 3.5 percent rate in the third quarter.
Trade tensions with China could constrain the economy going forward. Trade Representative Robert Lighthizer told lawmakers on Wednesday that Washington’s issues with China were “too serious” to be resolved with promises from Beijing to buy more American goods and a threat of higher tariffs could loom over trade with China for years.
The trade dispute in combination with a strong dollar and weakening global demand will likely restrain export growth. It also led cautious businesses to hoard imports, causing the trade deficit to widen.
The trade shortfall subtracted 0.22 percentage point from fourth-quarter GDP growth after slicing off 2 percentage points in the July-September period. With consumer spending slowing, some of the imports probably ended up in warehouses. This accelerated inventory accumulation, which offset some of the drag on GDP growth from the trade deficit.
Inventories increased at a $97.1 billion rate in the fourth quarter after rising at an $89.8 billion pace in the July-September quarter. Inventory investment added 0.13 percentage point to GDP growth last quarter after contributing 2.33 percentage points in the prior period.
Business spending on equipment accelerated in the fourth quarter from the prior period, growing at a 6.7 percent rate. It had slowed since the first quarter of 2018.
Residential construction contracted at a 3.5 percent rate, marking the fourth straight quarterly decline. Homebuilding has been weighed down by higher mortgage rates, land and labor shortages as well as tariffs on imported lumber.
Government investment increased at a 0.4 percent rate, the slowest since the third quarter of 2017.
Unemployment Claims Rise
The number of Americans filing applications for jobless benefits increased more than expected last week as the number of people on unemployment rolls increased to a 10-month high, suggesting some slowing in the labor market.
According to Thursday morning’s report by the Labor Department, initial claims for state unemployment benefits rose by 8,000 claims to a seasonally adjusted 225,000 claims for the week ended Feb. 23. Data for the prior week was revised to show 1,000 more claim applications received than previously reported.
The Labor Department said no states were estimated. The four-week moving average of initial claims, considered a better measure because it irons out week-to-week volatility, fell by 7,000 claims to 229,000 claims last week.
The claims report indicated that the number of claim benefits after an initial week of aid increased by 79,000 claims to 1.81 million claims for the week ended Feb. 16. That the highest level for that statistic since April 2018. The four-week moving average of these so-called continuing claims rose by 6,750 claims to 1.76 million claims.
The continuing claims data covered the week of the household survey from which February’s unemployment rate will be calculated. The four-week average of claims rose 31,750 between the January and February survey periods. The jobless rate rose one-tenth of a percentage point to 4.0 percent in January.