The benchmark S&P 500 index closed a touch below the unchanged mark as investors looked for developments on trade between the United States and China. Positive retail earnings from Target and data on the U.S. services and housing sectors helped provide support to the upside.
The Commerce Department said sales of new U.S. single-family homes rose to a seven-month high in December while a reading from the Institute for Supply Management showed an acceleration in growth in the vast services sector in February.
The S&P 500 index has struggled to hold above the 2,800 level, which has proven to be a stiff resistant point. Still, the index is up nearly 19 percent from its Dec. 24 low.
European shares bounced between modest gains and declines, eventually closing slightly higher in the wake of China’s response to the lowered growth target of between 6.0 to 6.5 percent for 2019, which includes billions of dollars in planned tax cuts and infrastructure spending and a lack of news on the trade front.
Fatigue after a strong run higher for equities is playing a role in the recent pause. MSCI’s All Country World Index was down 0.07 percent and has now risen more than 15 percent from its near two-year closing low on Dec. 24. The index is trading at 14.6 times expected earnings, on par with levels back in early October, when a global bear market began to take hold.
Oil prices were little changed as the market wavered on expectations for an imminent trade deal between the United States and China while awaiting government crude stocks data.
Domestic crude settled down 0.05 percent at $56.56 per barrel and Brent was last at $65.86, up 0.29 percent on the day.
Day’s Economic News
New single-family home sales rose to a seven-month high during December, but November’s outsized increase was revised lower, pointing to continued weakness in the housing market.
While other data on Tuesday indicated a rebound in growth in the vast services sector in February amid a surge in new orders, concerns over import tariffs, capacity constraints and labor shortages lingered. The trade dispute between the United States and China is among the factors that analysts say will contribute to slower economic growth this year.
Growth is softening as the stimulus from a $1.5 trillion tax cut package and increased government spending ebbs. The economy’s outlook is also clouded by slowing global growth and uncertainty over Britain’s exit from the European Union.
The Commerce Department said new home sales increased 3.7 percent to a seasonally adjusted annual rate of 621,000 units, the highest level since May 2018. November’s sales pace was revised down to 599,000 units from the previously reported 657,000 units. October’s sales pace was also revised lower.
New home sales are drawn from permits and tend to be volatile on a month-to-month basis. They fell 2.4 percent from a year ago. Single-family home sales rose 1.5 percent in 2018. The release of the December report was delayed by a five-week partial shutdown of the federal government that ended on Jan. 25.
The housing market hit a soft patch last year amid higher mortgage rates, expensive lumber as well as land and labor shortages, which led to tight inventories and less affordable homes. Reports last month showed homebuilding dropping to more than a two-year trough in December and home resales in January hitting their lowest level since November 2015.
Though house price inflation has slowed, and mortgage rates are hovering at 12-month lows, the housing market will likely remain weak due to persistent land and labor shortages. Investment in homebuilding contracted 0.2 percent in 2018, the weakest performance since 2010.
In December, new home sales rose in the South, West and Northeast, but tumbled in the Midwest to their lowest level since April 2016. The median new house price fell 7.2 percent to $318,600 in December from a year ago.
The soft housing data added to weak December construction spending, retail sales, factory orders, exports and business spending plans on equipment in setting the economy on a slower growth path in the first quarter.
The Atlanta Federal Reserve is currently forecasting GDP rising at a 0.3 percent annualized rate in the first quarter. The economy grew at a 2.6 percent pace in the fourth quarter.
Despite the anticipated sharp first-quarter slowdown, the economy’s fundamentals remain favorable. In a separate report on Tuesday, the Institute for Supply Management (ISM) said its non-manufacturing activity index increased 3.0 points to a reading of 59.7 last month.
A reading above 50 indicates expansion in the sector, which accounts for more than two-thirds of all domestic economic activity. January’s decline by the services sector index was largely blamed on financial market volatility and the government shutdown.
The surge in services sector activity last month was in sharp contrast with an ISM survey last week showing its measure of national factory activity tumbled in February to its lowest reading since November 2016. That left some economists skeptical of February’s rebound in services industry growth.
The ISM’s new orders sub-index for the services sector surged 7.5 points to a reading of 65.2 last month, the highest level since August 2005. The ISM said industries “are concerned about the uncertainty of tariffs, capacity constraints and employment resources, however, they remain mostly optimistic about overall business conditions and the economy.”
Worries about import duties were mostly prevalent in the retail, support services, accommodation and food industries.
The ISM’s services industry employment measure fell 2.6 points to 55.2 in February, the weakest reading since June 2018. The slowdown in hiring is likely related to worker shortages.