The major domestic equity indexes closed out the trading day on Monday with red ink in a choppy trading session, dragged down by technology stocks amid lingering worries over interest rates and corporate earnings.
The benchmark S&P 500 index wobbled between positive and negative territory for much of the day but moved definitively lower in the last half-hour of trading. The Dow Jones Industrial Average, which was positive for most of the session, reversed course.
The technology index fell 1.6 percent, weighing the most on the S&P 500, while defensive sectors such as real estate, consumer staples and utilities led the parade fir the S&P’s major sectors in percentage gains.
S&P 500 companies on average are expected to report 21.6 percent year-over-year profit growth, a decrease from the previous two quarters, according to I/B/E/S data.
The Treasury Department released data on Monday indicating that the federal government closed the 2018 fiscal year with the largest deficit since 2012. It ended the 12 months through September $779 billion in the red as tax cuts hit revenues and the government paid more to service a growing national debt.
Yields on the benchmark 10-year Treasury note were at 3.1557 percent, holding above September’s levels but below the levels that prompted last week’s sell-off.
Bank of America fell 1.9 percent after loan growth at our second-largest domestic bank lagged rivals, while fees from advising on deals and underwriting bonds fell in the third quarter.
Apple fell 2.1 percent and weighed the most on all three of Wall Street’s major indexes after Goldman Sachs said there were multiple signs of rapidly slowing consumer demand in China, which could affect demand for iPhones this fall.
The top gainers on the S&P were L3 Technologies, up 12.8 percent, and Harris, up 11.9 percent, after the military communication equipment providers announced an all-stock merger to create the sixth-largest domestic defense contractor.
Approximately 6.91 billion shares changed hands on the major domestic equity exchanges, as compared to the 7.82 billion share average over the past 20 trading days.
Fed Chalks Up Largest Deficit Since 2012
The federal government closed the 2018 fiscal year $779 billion in the red as tax cuts hit revenues and the government paid more to service a growing national debt, according to Treasury Department data released on Monday.
The deficit for the fiscal year – or the 12 months through September – was the largest since 2012.
The corporate and individual tax cuts passed by the administration late last year and an increase in government spending agreed in early February ballooning the nation’s deficit.
The deficit in the 12 months through September was $113 billion – or 17 percent – larger than in the same period a year earlier. Adjusting for calendar effects, the gap was even larger, the Treasury official said.
Much of the increase came from more spending on interest payments on the national debt. Borrowing has increased over the last year, partially to make up for slower growth in tax revenues due to the tax cuts.
Also fueling debt servicing costs, the U.S. Federal Reserve has been slowly raising interest rates since 2015 in a bid to keep inflation under control. Also adding to the deficit was the increase in spending on the military.
With the calendar adjustments, the trade surplus in September was $59 billion compared with a $56 billion surplus the year earlier, the Treasury official said. The gap for the fiscal year was $827 billion versus an adjusted $658 billion in fiscal 2017.
Day’s Economic Data
Retail sales were virtually unchanged during September, as a rebound in motor vehicle purchases was offset by the largest drop in spending at restaurants and bars in two years.
Other data was more upbeat, suggesting that consumer spending ended the third quarter with strong momentum, which should provide some improvement to economic growth despite anticipated drags from weak exports and a struggling housing market.
Retail sales edged up 0.1 percent in September after a similar gain in August and were up 4.7 percent from a year ago.
Excluding automobiles, gasoline, building materials and food services, retail sales jumped 0.5 percent last month after being unchanged in August. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
Consumer spending, which accounts for more than two thirds of our economic activity, is being driven by a robust labor market, with the unemployment rate near a 49-year low of 3.7 percent. Tight labor market conditions are gradually pushing up wage growth.
Consumption has also been supported by the $1.5 trillion tax cut as well as higher savings. However, the stimulus from the tax cuts is fading and consumer spending will likely slow in the fourth quarter.
Consumer spending grew at an annualized rate of about 3.5 percent in the third quarter, which would be slightly below the 3.8 percent pace logged in the April-June period. Solid consumer spending should help to offset the impact on the economy from a widening trade deficit and persistent weakness in the housing market.
Growth estimates for the third quarter are above a 3.0 percent rate. The economy grew at a 4.2 percent pace in the second quarter.
Growth prospects for the July-September quarter were bolstered by a second report from the Commerce Department on Monday showing business inventories rose 0.5 percent in August after increasing 0.7 percent in July.
Inventory investment is expected to contribute to GDP growth after a liquidation of stocks sliced 1.17 percentage points from output in the April-June quarter.
Strong economic growth likely will keep the Fed on course to raise interest rates in December. Meanwhile, tightening monetary policy has roiled the financial markets recently.
Last month, auto sales rose 0.8 percent after declining 0.5 percent in August. Receipts at clothing stores rebounded 0.5 percent after tumbling 2.8 percent in August. Online and mail-order sales soared 1.1 percent in September after rising 0.5 percent in the prior month.
There were also strong increases in receipts at furniture, hobby, musical instrument and book stores as well as electronics and appliances outlets. However, consumers reduced their spending at restaurants and bars, with sales dropping 1.8 percent. That was the largest decline since December 2016 and followed a 0.3 percent increase during August.
While the Commerce Department said it was impossible to determine the impact of Hurricane Florence on the data, disruptions caused by the storm could have hurt sales at restaurants and bars last month.
Sales at building material stores rose 0.1 percent in September. Receipts at service stations fell 0.8 percent, likely reflecting a moderation in gasoline prices.