The major domestic equity indexes were lower on Thursday, pressured by weak economic data and a drop-in healthcare shares led by Johnson & Johnson, with investors keeping a close watch on U.S.-China trade talks.
A sharp slowdown in global growth, especially in China and Europe, along with fading fiscal stimulus and trade tensions have fueled recent worries about the economy.
The Atlanta Federal Reserve’s GDPNow forecast model now shows the U.S. economy likely expanded at a 1.4 percent annualized rate in the fourth quarter.
The S&P healthcare index slid 1.16 percent, weighed down by Johnson & Johnson’s 0.68 percent decline. The healthcare giant said it received subpoenas from U.S. regulators related to litigation involving alleged asbestos contamination in its signature baby powder product line.
Adding to the day’s weakness, the S&P 500 energy index fell 1.6 percent.
Domino’s Pizza shares tumbled 9.1 percent after it missed consensus estimates for quarterly same-store sales.
New orders for key U.S.-made capital goods unexpectedly fell in December amid declining demand for machinery and primary metals, pointing to a further slowdown in business spending on equipment that could crimp economic growth.
The Labor Department indicated that the number of Americans filing applications for unemployment benefits fell last week, but the four-week moving average rose to a more than one-year high, suggesting the labor market was slowing down.
The Philadelphia Fed’s gauge on Mid-Atlantic business activity also showed a decline in February to its weakest level since May 2016.
The United States and China have started to outline commitments in principle on the stickiest issues in their trade dispute, marking the most significant progress yet toward ending a seven-month trade war.
A Nike sneaker worn by emerging basketball star Zion Williamson split in half 33 seconds into a hotly anticipated game between Duke University and North Carolina, sending the company’s shares down one percent.
Biogen Inc shares fell 4.17 percent after brokerage Stifel downgraded the stock to “hold” from “buy”.
Among few gainers, lithium producer Albermarle’s shares were up 5.8 percent after the company posted a higher-than-expected quarterly profit and gave a bullish 2019 outlook.
Economic News of the Day
New orders for key capital goods fell in December amid declining demand for machinery and primary metals, pointing to a further slowdown in business spending on equipment that could crimp economic growth.
The moderation in business investment was also underscored by another report on Thursday indicating a measure of factory activity in the mid-Atlantic region contracted in February for the first time since May 2016.
The reports, together with data last week showing steep declines in retail sales in December and manufacturing output in January, strengthen the Federal Reserve’s “patient” stance toward raising interest rates further this year.
Minutes of the U.S. central bank’s Jan. 29-30 policy meeting published on Wednesday noted that “some risks to the downside had increased” about the outlook for the economy. The Fed left interest rates unchanged at that meeting and discarded promises of “further gradual increases” in borrowing costs.
The Commerce Department said orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.7 percent.
Data for November was revised down to show these so-called core capital goods orders falling 1.0 percent instead of declining 0.6 percent as previously reported.
Core capital goods orders increased 6.1 percent on a year-on-year basis.
Shipments of core capital goods rose 0.5 percent in December after an unrevised 0.2 percent drop in the prior month. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.
While the rebound in core capital goods shipments suggests continued moderate growth in business spending on equipment in the fourth quarter, the surprise decline in orders points to weakness in the months ahead.
The December report was delayed by a 35-day partial shutdown of the federal government that ended on Jan. 25. The Commerce Department said the “processing and data quality were monitored throughout, and response and coverage rates were at or above normal levels for this release.”
In a separate report on Thursday, the Philadelphia Fed said its manufacturing activity index dropped to a reading of -4.1 this month from 17.0 in January. That was the first negative reading since May 2016. There were negative readings for new orders and shipments at factories in the region that covers eastern Pennsylvania, southern New Jersey, and Delaware.
In the wake of last week’s downbeat December retail sales report, economists slashed their GDP growth estimates for the fourth quarter by as much as 1.2 percentage points to as low as a 1.5 percent annualized rate. The economy grew at a 3.4 percent pace in the third quarter.
The economy’s outlook has been clouded by fears of a sharp slowdown in global growth, especially in China and Europe, fading fiscal stimulus, trade tensions as well as uncertainty regarding Britain’s departure from the European Union.
The Fed has acknowledged the softening in business spending, noting in Wednesday’s minutes that “manufacturing contacts in a number of Districts indicated that such factors were causing them to delay or defer capital expenditures.”
Business spending on equipment has been slowing since the second quarter of 2018, despite the White House’s $1.5 trillion tax cut. Some companies including Apple used their tax windfall to buy back shares on a massive scale. A survey last month showed lower taxes had not caused companies to change hiring or investment plans.
In December, orders for machinery fell 0.4 percent. Primary metals orders dropped 0.9 percent. There were also decreases in orders for electrical equipment, appliances and components. Orders for computers and electronic products were unchanged.
Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, increased 1.2 percent in December. That reflected a 3.3 percent rise in demand for transportation equipment. Durable goods orders gained 1.0 percent in November.
A third report on Thursday from the Labor Department showed initial claims for state unemployment benefits dropped 23,000 to a seasonally adjusted 216,000 for the week ended Feb. 16.
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 4,000 to 235,750 last week, the highest level since January 2018. That suggested some weakening in labor market conditions.