The S&P 500 and the Dow Jones Industrial Average were down slightly, while the Nasdaq posted a slim gain on Thursday as Wall Street tried to square grim retail sales data with hopes that high-level talks in Beijing could resolve the ongoing U.S.-China trade dispute.
Paring earlier losses, the S&P 500 held above its 200-day moving average, a key technical level, for the third straight session.
All three major domestic equity indexes were held back by rate-sensitive financial stocks as Treasury yields fell on the weaker-than-expected economic data.
Talks to defuse the ongoing tariff dispute between the world’s two largest economies moved to a higher level as U.S.-China negotiations progressed in Beijing ahead of the March 1 deadline.
However, trade optimism was undercut by a report from the Commerce Department indicating that retail sales in December were at their lowest point in more than nine years, stoking fears of an economic slowdown.
With the fourth-quarter reporting season now more than three-fourths complete the consensus appears to be for earnings growth of 16.2 percent for the quarter, according to Refinitiv data.
At the same time, first-quarter estimates are less favorable. They show a 0.3 percent year-on-year decline, which would mark the first quarter of negative growth since the earnings recession that ended in 2016.
Of the 11 major sectors in the S&P 500, 6 closed in negative territory, with consumer staples and financials showing the biggest percentage declines.
Cisco was up 1.9 percent on the heels of a better-than-expected earnings report as the company benefited from strength in newer businesses and ignored the impact of the U.S.-China trade war.
Shares of American International Group fell 9.0 percent, their worst day in four years after the global insurer posted a quarterly loss.
Coca-Cola Co fell, dropping 8.4 percent and providing the largest drag on the Dow after its full-year earnings forecast fell well below Wall Street expectations.
Amazon fell 1.1 percent after pulling the plug on its planned headquarters in New York due to local opposition.
Canada Goose’s quarterly numbers and earnings forecasts exceeded consensus expectations, while indicating that higher labor costs and expansion investments hit profit margins. The luxury coat maker’s U.S.-listed shares sank 12.9 percent.
Avon Products was down 11.0 percent after the multi-level marketing cosmetics brand missed quarterly revenue estimates.
Approximately 7.18 billion shares changed hands on the major domestic equity exchanges, as compared to the 7.43 billion share average over the past 20 trading days.
Unemployment Claims Rise
The number of new applications for unemployment benefits rose unexpectedly last week, sending the four-week moving average of claims to its highest level in just over a year. This could be an indication that job growth is slowing.
According to Thursday morning’s report from the Labor Department, initial claims for state unemployment benefits increased by 4,000 claims to a seasonally adjusted 239,000 claims for the week ended February 9. Data for the prior week was revised upward, resulting in 1,000 more applications than had been previously reported. Claims were close to a 1-1/2-year high of 253,000 claims for the week ended Jan. 26.
The Labor Department stated that no states were estimated last week. The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose by 6,750 claims to 231,750 claims last week, the highest level since January 2018.
Despite the recent increase in claims, layoffs remain low amid companies struggling to find workers. The government reported last Tuesday that there were a record 7.3 million job openings in December.
The claims report indicated that the number of people receiving benefits after an initial week of aid increased by 37,000 to 1.77 million claims for the week ended Feb. 2. The four-week moving average of these so-called continuing claims rose by 9,000 claims to 1.75 million claims.
Retail Sales Fall
Retail sales were lower across the board at the end of 2018, suggesting a sharp slowdown in economic activity. There was also little sign of inflation in the economy, with producer prices dropping in January for a second straight month. Moderate inflation and softening domestic demand support the Federal Reserve’s pledge to be “patient” before raising interest rates further this year.
According to the Commerce Department, retail sales in December fell1.2 percent, the largest decline since September 2009 when the economy was emerging from recession. Data for November was revised slightly down to show retail sales edging up 0.1 percent instead of gaining 0.2 percent as previously reported. Retail sales in December rose 2.3 percent from a year ago.
The December retail sales report was delayed by a 35-day partial shutdown of the federal government that ended on Jan. 25. No date has been set for the release of the January retail sales report, which was scheduled for publication on Friday.
The decline in retail sales came amid a sharp stock market sell-off and drop in consumer confidence in December. The longest government shutdown could also have undercut retail sales.
Excluding automobiles, gasoline, building materials and food services, core retail sales fell 1.7 percent in December after an upwardly revised 1.0 percent increase in November. This core retail sales number corresponds most closely with the consumer spending component of gross domestic product. The core number was previously reported to have increased 0.9 percent in November.
December’s sharp drop in core retail sales suggested a moderation in the pace of consumer spending in the fourth quarter. Consumer spending, which accounts for more than two-thirds of the economy, increased at a 3.5 percent annualized rate in the July-September quarter.
Gross domestic product growth estimates for the fourth quarter are around a 2.7 percent rate but could be revised lower in the wake of the recent downbeat retail sales report. The economy grew at a 3.4 percent pace in the July-September period.
In December, online and mail-order retail sales fell 3.9 percent, the largest decline since November 2008. Receipts at service stations were down 5.1 percent, the largest fall since February 2016, reflecting cheaper gasoline prices.
There were also declines in receipts at clothing and furniture stores. Sending at restaurants and bars also declined. Sales at hobby, musical instrument and book stores fell 4.9 percent, the largest decline since September 2008.
However, sales at auto dealerships rose 1.0 percent in December and receipts at building material stores gained 0.3 percent.
The outlook for consumer spending, which has been underpinned by a strong labor market and cheaper gasoline, is not encouraging. A report this week from the New York Fed showed the overall debt shouldered by Americans edged up to a record $13.5 trillion in the fourth quarter of 2018.
Producer Price Index Falls
The Labor Department reported that its producer price index for final demand fell 0.1 percent last month as the cost of energy products and food fell. The PPI was down 0.1 percent in December.
In the 12 months through January, the PPI rose 2.0 percent. That was the smallest gain since July 2017 and followed a 2.5 percent rise in December.
The PPI report came on the heels of data on Wednesday indicating consumer prices were unchanged in January for a third straight month.