The major domestic equity indexes closed out the reduced trading day on Tuesday, in negative territory, weighed down by Apple, Facebook and other technology stocks.
Facebook fell 2.35 percent after the Washington Post reported a federal probe on the data breach linked to Cambridge Analytica was broadened and will include more government agencies. The dip in the social media company’s stock, along with a 1.7 percent slide in Apple, weighed on the S&P technology sector, which fell 1.37 percent.
Energy stocks held onto gains even after crude oil prices reversed course shortly after the market opened as traders booked profits.
Trade tensions continued to fester, with Trump on Monday making a veiled threat against the World Trade Organization. Also looming is a July 6 deadline when Washington is set to impose tariffs on $34 billion worth of Chinese goods.
Shares of American Airlines, United Continental and Delta fell between 1 percent and 2.28 percent after Deutsche Bank downgraded all three stocks saying the growing U.S.-China trade dispute could weigh on their results.
Tesla fell 7.2 percent, declining for the second straight session on questions over whether it could sustain the pace of making its Model 3 sedans.
Economic data was mixed. New orders for U.S.-made goods unexpectedly rose in May, pointing to a strengthening manufacturing sector, but business spending on equipment continued to show signs of slowing.
As well as a day off, traders were looking toward June unemployment data due out on Friday for a glimpse of the how much the labor market may be tightening, and for potential price pressure.
With the markets closing at 1 p.m. ahead of the July 4 holiday, approximately 3.9 billion shares changed hands on the major domestic equity exchanges, as compared to the 7.1 billion share average over the past 20 trading days.
Factory Orders Rise
New orders factory goods were unexpectedly higher during May, pointing to a strengthening manufacturing sector. At the same time, business spending on equipment continued to show signs of slowing.
According to a report by the Commerce Department released on Tuesday morning, factory orders increased 0.4 percent amid strong demand for machinery. Data for April was revised up to show orders falling 0.4 percent instead of the previously reported 0.8 percent decrease. Orders increased 8.7 percent on a year-on-year basis in May.
Manufacturing, which accounts for approximately 12 percent of our GDP, is being aided by strong domestic and global demand. At the same time, growing shortages of workers as well as import tariffs are starting to strain the supply chain.
The Trump administration has imposed tariffs on a range of imported goods, including steel and aluminum, to protect domestic industries from what it says is unfair competition from foreign manufacturers.
The “America First” trade policy has left the United States embroiled in tit-for-tat tariffs with its major trading partners, including China, Canada, Mexico and the European Union.
An Institute for Supply Management (ISM) survey of manufacturers published on Monday showed bottlenecks in the supply chain, with a measure of supplier deliveries hitting its highest level since May 2004.
Manufacturers said the tariffs and “lack of predictability” of trade policy were causing “general business instability” and were a “drag on growth for investments.” They also complained about an acute shortage of workers, especially truckers, and some manufacturers said transportation costs had “gone through the roof” as a result.
Orders for transportation equipment fell 1.1 percent, weighed down by a 7.0 percent plunge in the volatile orders for civilian aircraft. Transportation orders declined 6.1 percent in April. Orders for motor vehicles rose 0.3 percent in May.
Orders for machinery increased 1.2 percent, extending April’s 1.7 percent surge. That reflected an 8.9 percent jump in orders for industrial machinery. Demand for mining, oil field and gas field machinery fell 3.9 percent.
There were also declines in orders for primary metals, fabricated metal products as well as electrical equipment, appliances and components, and computers and electronic products. Unfilled orders at factories increased 0.5 percent in May while inventories rose 0.2 percent. The unfilled orders-to-shipments ratio fell to 6.68 from 6.73 in April.
According to the Commerce Department orders for non-defense capital goods excluding aircraft, which are seen as a measure of business spending plans, rose 0.3 percent in May instead of falling 0.2 percent as reported last month. Orders for these so-called core capital goods jumped 2.0 percent in April.
Shipments of core capital goods, which are used to calculate business equipment spending in the gross domestic product report, rose 0.2 percent in May instead of dipping 0.1 percent as reported last month. Core capital goods shipments increased 0.8 percent in April.
Business spending on equipment is slowing after double-digit growth in the second half of 2017. The moderation in business spending on equipment could undercut the White House’s argument that lower corporate tax rates would boost investment.
Some companies like Apple have used the tax windfall for share buybacks and dividends.
Morgan Stanley reported last week that its Capex Plans index declined in June for a third straight month. It said while the index still indicated a positive outlook for equipment spending in the second half of the year, it was past its peak.