The major domestic equity indexes were in negative territory at the closing bell on Monday, weighed down by a weak construction spending report and declines in healthcare shares, as an initial rally on optimism over a U.S.-China trade deal faded.

Domestic construction spending unexpectedly fell in December due to a decline in investment in both private and public projects. As a result, the consensus is that the Commerce Department will trim its GDP growth estimate for the fourth quarter.

Before turning negative, stocks had climbed following a report that Trump and Chinese President Xi Jinping could reach a formal trade deal at a summit around March 27.

Optimism over the world’s two largest economies reaching a trade truce already has been a significant factor fueling the market’s rally since late December, along with the belief that the Fed will not be aggressive in raising interest rates. The S&P 500 remains up more than 11 percent in 2019.

The 2,800 level for the S&P 500 is considered by many on the Street to be a key technical level. The benchmark index rose as high as 2,816.88 during the session.

Healthcare, which has underperformed this year, was the largest declining major S&P 500 sector, falling 1.3 percent. Shares of UnitedHealth Group were down 4.1 percent, weighing on the Dow Jones Industrial Average, while shares of other health insurers also plowed into negative territory.

In healthcare news, Reuters reported that OxyContin maker Purdue Pharma LP is exploring filing for bankruptcy to address potentially significant liabilities from lawsuits alleging the company contributed to the opioid crisis, sending shares of some publicly-traded sellers of opioid pain treatments lower.

Nonetheless, the major domestic equity indexes ended the trading day above their session lows. Materials rose 0.44 percent, the most among the S&P 500 sectors.

In corporate news, AT&T fell 2.7 percent as the company is restructuring its WarnerMedia business, according to a memo sent to employees on Monday.

Approximately 7.9 billion shares changed hands the major domestic equity exchanges, a number that was above the 7.3 billion share daily average over the past 20 trading sessions.

Construction Spending Falls

The Commerce Department reported on Monday that construction spending fell unexpectedly during December due to a drop in both private and public projects. As a result, the next estimate of fourth quarter GDP is liable to show a small decline in economic growth.

The report Commerce Department’s report is further evidence that the economy lost momentum in the last quarter of 2018. Growth is slowing as the stimulus from a $1.5 trillion tax cut and increased government spending becomes muted. Trade tensions between the United States and China as well as slowing global economies are also hurting domestic activity.

The construction spending report extended the run of weak December economic data, that has included retail sales, housing starts, trade and home sales.

Construction spending declined 0.6 percent after an unrevised 0.8 percent increase in November. Construction spending increased 1.6 percent on a year-on-year basis.

It rose 4.1 percent in 2018, the weakest reading since 2011. The release of the December report was delayed by the government shutdown.

Taking into consideration the construction spending data, the Commerce Department is likely to reduce its fourth-quarter GDP estimate by at least one-tenth of a percentage point to a 2.5 percent annualized rate.

The government reported last Thursday that the economy grew at a 2.6 percent rate in the October-December period, slowing from the third quarter’s brisk 3.4 percent pace.

It is scheduled to publish revisions to the fourth-quarter GDP data at the end of the month. The stream of soft December reports set the economy on a slower growth path in the first quarter.

In December, spending on private construction projects fell 0.6 percent after rising 1.3 percent in November. Investment in private residential projects fell 1.4 percent after rebounding 3.4 percent in November.

The housing market has been weighed down by higher mortgage rates, expensive building materials as well as land and labor shortages. Residential investment fell 0.2 percent in 2018, the worst performance since 2010.

Spending on private nonresidential structures, which includes manufacturing and power plants, gained 0.4 percent in December after declining 1.1 percent in November. Spending on nonresidential structures contracted in both the third and fourth quarters.

Investment in public construction projects fell 0.6 percent in December to an eight-month low after decreasing 1.0 percent in November. Spending on federal government construction projects plunged 2.2 percent after rising 0.3 percent in November.

Investment in state and local government construction projects fell 0.5 percent in December to an eight-month low after dropping 1.1 percent in November.

ECB Looking at Expanding TLTRO Loans

The ECB gave banks a total of 739 billion euros of cash in four-year, “targeted longer-term refinancing operations” – or TLTROs – in 2016 and 2017. The “targeted” part of the name is key: If banks lent the money on to the real economy – companies, in particular – they could get cash back rather than pay interest on it, as the facility would be remunerated at the ECB’s minus 0.4 percent deposit rate.

Once the remaining maturity of the previous loans falls below one year, only part of the money will count toward banks’ net stable funding ratio (NSFR) so they will have a greater incentive from June to pay the loans back to the ECB. This would shrink the ECB’s balance sheet while forcing banks to find more expensive funding and restricting their ability to loan.

Lending data already showed a big dip in corporate lending growth in January, in line with banks’ tendency to lend more freely during booms and cut credit sharply during slowdowns. Banks’ exceptionally weak profits are also expected to reinforce this so-called pro-cyclical behavior.

Growth in bank lending hit post-crisis highs last year, and ECB surveys show that funding is not among banks’ top concerns, suggesting the TLTROs have worked their way through to the economy. The banks surveyed overwhelmingly said they had loaned the funds on to businesses and this had lowered their costs, allowing them to ease credit conditions.

Having already discussed a new TLTRO, the ECB is expected to commit to the facility as early as March 7, but may hold off on the final details until as late as June, just before the remaining maturity of the first chunk of old TLTROs fall below one year.

The terms and conditions of the loan will be key as they could lock the ECB into a policy stance for years.

ECB chief economist Peter Praet described the old TLTROs as “very generous”, which suggests the conditions could be less favorable next time round, although if the euro zone’s downturn deepens, policymakers could opt to stay generous.

For one thing, the new loan is likely to be for a shorter period such as two or three years, rather than the previous four. It could also have a floating interest rate initially set at the ECB’s main rate, which is currently zero.

If the cash is no longer “targeted”, banks could use it as they see fit. The risk is that some would buy government bonds and cash in on the difference in interest rates, helping themselves but doing nothing for the rest of the economy. This type of “carry trade” has been seen in the past, and some policymakers have already expressed reservations about it.

Another issue is whether the ECB would simply roll over old TLTROs or let banks take new loans. It could also set limits on the amount banks can borrow.

Italian and Spanish banks hold 56 percent of the 724 billion euros still outstanding from previous TLTROs. Some policymakers say this suggests the facility is de facto directed at countries rather than the euro zone.

World shares tick higher on U.S.-China trade deal optimism

By contrast, banks in northern Europe with excess cash have to pay to park their funds overnight at the ECB.

As the current TLTRO loans are already an extension of a previous facility, some argue that banks are too reliant as it is on ECB funding and that a new loan will not do much to wean them off central bank cash.

Still, there is no indication that policymakers would oppose a new TLTRO, even if the exact details will be subject to lengthy debate.