Wall Street’s major equity indexes closed out the trading day with a bit of red ink on Tuesday, after a choppy session as the Street eyed mixed economic data and corporate news, while waiting for clarity on issues such as the U.S.-China trade talks.
Weaker-than-expected housing data contrasted with a rosy consumer confidence report, while Home Depot Inc was among the biggest drags on the benchmark S&P 500 index after the home improvement retailer blamed bad weather for missed Wall Street forecasts.
Federal Reserve Chairman Jerome Powell told a Senate Banking Committee that the central bank would remain “patient” in deciding on further interest rate hikes and that rising risks and recent soft data should not prevent solid growth for the economy this year.
The indexes have already seen gains in recent weeks, the result of trade optimism and dovish signals from the Fed. As a result, the S&P 500’s session high was just 4.7 percent away from its record closing high in September.
Seven of the 11 major S&P sectors ended lower with industrials providing the largest drag with a decline of 0.3 percent. The benchmark’s largest boost was the technology index, which closed with a gain of 0.2 percent.
The healthcare index fell 0.3 percent after a congressional hearing on the prices of medicines wrapped up in Washington. Declines in shares of health insurers Cigna Corp and UnitedHealth Group, both of which operate major pharmacy benefit managers, were big drags on the sector.
The S&P’s loser of the day was JPMorgan Chase, down 0.8 percent after it warned of rising costs for deposits, a key part of its business, and slowing global economic growth.
Caterpillar fell 2.4 percent and depressed the benchmark after brokerage UBS downgraded the stock to “sell” from a “buy” rating.
The homebuilding sector hit a two-year low in December with a decline in construction of both single and multifamily housing.
However, the Conference Board’s consumer confidence index rose more than expected in February.
Approximately 7.05 billion shares changed hands on the major equity exchanges, as compared to the 7.3 billion share average over the past 20 trading days.
Housing Starts Fall
New home building fell to a two-year low in December as construction of both single and multi-family housing declined, the latest indication that the economy lost momentum in the fourth quarter.
According to the Commerce Department’s report on Tuesday, the housing market could remain sluggish for some time despite an easing in mortgage rates.
Housing completions fell to a one-year low in December and while building permits increased, they were driven by the volatile multi-family housing segment.
Housing starts fell 11.2 percent to a seasonally adjusted annual rate of 1.078 million units last month, the weakest reading since September 2016. Data for November was revised down to show starts at a 1.214-million-unit rate instead of the previously reported 1.256-million-unit rate.
Building permits rose 0.3 percent to a rate of 1.326 million units in December.
The release of the December housing starts and building permits 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 January’s report.
The Commerce Department said while delays in data collection could make it more difficult to determine the exact start and completion dates of construction, “processing and data quality were monitored, and no significant issues were identified.”
The report added to weak December retail sales and business spending plans on equipment in suggesting that economic growth cooled down significantly at the tail end of 2018.
It also implied that residential investment probably contracted in the fourth quarter, which would extend a decline that began in early 2018.
The housing market hit a soft patch last year amid higher mortgage rates as well as land and labor shortages, which led to tight inventories and more expensive homes.
Though mortgage rates have been declining and house price inflation has decelerated, look for the housing market’s weakness to continue through the first half of 2019.
A survey last week showed homebuilder confidence increased in February, but builders continued to say land and labor shortages and tariffs on lumber and other key building materials were keeping costs high.
Single-family homebuilding, which accounts for the largest share of the housing market, dropped 6.7 percent to a rate of 758,000 units in December, the lowest level since August 2016.
It was the fourth straight monthly decline in single-family homebuilding. Single-family starts in the South, which accounts for the bulk of homebuilding, rose 2.2 percent in December.
Single-family homebuilding plunged 20.3 percent in the Northeast and dived 18.5 percent in the West. Groundbreaking on single-family homes tumbled 14.2 percent in the Midwest.
Permits to build single-family homes fell 2.2 percent in December to a pace of 829,000 units. Starts for the multi-family housing segment dropped 20.4 percent to a rate of 320,000 units in December. Permits for the construction of multi-family homes rose 4.9 percent to a pace of 497,000 units.
Housing completions fell 2.7 percent to 1.097 million units, the fewest since September 2017. Home completions increased 3.4 percent in 2018.
Fed Not in a Rush to Raise Rates
The Federal Reserve is in “no rush to make a judgment” about further changes to interest rates, Fed Chairman Jerome Powell told Congress on Tuesday as he spelled out the central bank’s approach to an economy that is likely slowing.
In two hours of testimony to the Senate Banking Committee, Powell elaborated on the “conflicting signals” the Fed has tried to decipher in recent weeks, including disappointing data on retail sales and other aspects of the economy that contrast with steady hiring, wage growth, and ongoing low unemployment.
“The baseline outlook is a good one,” Powell said, but slower growth overseas is a drag on the economy that “we may feel more of” in the coming months.
“We have the makings of a good outlook and our (rate-setting) committee is really monitoring the crosscurrents, the risks, and for now we are going to be patient with our policy and allow things to take time to clarify.”
If anything, Powell’s comments solidified a Fed policy shift last month in which it indicated it would pause a three-year cycle of rate hikes, which had been projected to run well into 2020, until the inflation or growth dynamics change.
The flow of new workers into the labor force, for example, has surprised the central bank and means “there is more room to grow,” Powell said.
Financial markets were largely unmoved by Powell’s testimony, which was the first of his two hearings this week in Congress. He is due to appear before the House of Representatives Financial Services Committee on Wednesday.
Powell told lawmakers that the Fed expected the economy to grow solidly but at a slower pace this year than the estimated 3 percent growth for 2018, an outlook that was built into the central bank’s policy statement in January.
Powell’s appearances on Capitol Hill this week, part of his semi-annual testimony to Congress. Along with questions that ranged from the sources of rural poverty to the impact of climate change on banks, Senate committee members pressed points likely to figure into the Democratic primary battle.
“The Fed works for big rich banks that want to get bigger and richer,” said Senator Elizabeth Warren. She questioned whether Powell would be adequately aggressive in reviewing a proposed megamerger between BB&T and rival SunTrust. Powell pledged an “open and transparent” review of the deal.
When asked whether there had been any “direct or indirect” communication from the White House about interest rates, Powell deferred, saying he would not comment on private conversations with other officials.
Finally, Powell repeated his oft-heard pledge that the Fed will make policy decisions “in a way that is not political.”