The major equity indexes were mixed on Tuesday, with technology shares dipping ahead of Apple’s quarterly report while a rebound in 3M and other industrials elevated the Dow Jones Industrial Average.
Apple fell 1.04 percent in anticipation of the iPhone maker’s results after the bell following its warning earlier this month about soft demand in China, whose economy has been damaged by a trade war with the United States.
Interest rates were in focus as the Federal Reserve began a two-day monetary policy meeting. After raising rates gradually last year, the central bank is taking a wait-and-see approach to further tightening in the face of an overseas slowdown and market volatility.
The Fed is widely expected to leave rates unchanged on Wednesday, with Friday’s January jobs report a possible predictor as to the pace of future inflation.
The S&P industrials index, which took a beating after a warning from Caterpillar on Monday, rebounded 1.74 percent, helped by better-than-expected reports from 3M and defense companies.
Amazon, Facebook and Microsoft, all part of a wave of quarterly reports later this week, fell more than 2 percent each. The S&P technology index lost 1.01 percent.
The consensus appears to be that the S&P 500 companies’ aggregate earnings per share will have chalked up an increase of 14.2 percent in the fourth quarter. However, with corporate tax cuts now a year old, 2019 earnings are seen rising at a more moderate 5.6 percent.
As Washington and Beijing officials prepare for a high-level trade meeting this week, the Justice Department leveled charges against Chinese telecom giant Huawei, potentially casting a cloud on the talks.
L3 Technologies closed with a gain of 8.44 percent and Harris gained 8.78 percent after exceeding quarterly earnings estimates.
3M was up 1.94 percent after its fourth-quarter results exceeded estimates, even as the company trimmed its 2019 earnings outlook, due to a slowdown in its Chinese business.
Harley-Davidson fell 5.05 percent after the motorcycle maker reported a lower-than-expected quarterly earnings, due to declining sales in the United States.
Allergan Plc fell 8.55 percent after the manufacturer of Botox forecast 2019 revenue below expectations.
Approximately 6.7 billion shares changed hands on the major domestic equity exchanges, as compared to the 7.6 billion share average over the past 20 trading days.
Apple Exceeds Expectations
After the closing bell, Apple reported revenue of $84.3 billion, slightly above the consensus estimate of $84 billion. Earnings per share came in at $4.18 per share, as compared to the Street’s average estimate of $4.17, according to Refinitiv data.
The company said revenue from services such as Apple Music, the App Store and others – which investors are counting on to fuel growth – reached $10.8 billion, in line with Wall Street estimates. Services gross margin hit 63 percent.
Apple said it now has 360 million subscribers to both its own and third party services, and set a goal to expand that to 500 million by the end of 2020. It said it now has 1.4 billion active devices, an increase of 100 million from last year, and that 900 million of those are iPhones.
Apple’s iPhone revenue declined 15 percent year over year to $51.9 billion, due to China’s economic weakness that hurt iPhone sales there.
Consumer Confidence Falls
Consumer confidence fell to a 1-1/2 year-low in January as a partial shutdown of the government and the turmoil within the financial markets have left investors a bit nervous about the economy’s prospects.
The decline in confidence reported by the Conference Board on Tuesday mirrors another survey earlier this month showing sentiment tumbling to its lowest level since President Donald Trump was elected more than two years ago, strengthening analysts’ expectations that the economy was losing momentum.
The Conference Board’s consumer confidence index dropped 6.4 points to 120.2 this month, the lowest reading since July 2017. The reason given for the third straight monthly decline in confidence was “financial market volatility and the government shutdown.”
The survey’s expectations measure tumbled to levels last seen in October 2016. The cutoff date for the Conference Board’s survey was Jan. 17, amid the shutdown which shuttered about one-quarter of federal agencies as of Dec. 22, impacting 800,000 government employees.
The longest government shutdown ended on Friday when Trump and Congress agreed to temporary government funding – without money for his U.S.-Mexico border wall. According to the nonpartisan Congressional Budget Office, the economy lost about $11 billion during the five-week shutdown.
With the government shutdown over for now and financial markets stabilizing, some economists expect a rebound in confidence in the months ahead.
Others are not convinced, pointing out that the Conference Board’s confidence index has shed 17.7 points over the past three months, the most since 2011.
The survey’s so-called labor market differential, derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful, rose to 33.7 in January from to 33.3 in December but was below its peak of 34.2 in November. That measure closely correlates to the unemployment rate in the Labor Department’s employment report.
The confidence survey adds to recent data showing home resales plummeting in December. Some regional Federal Reserve manufacturing surveys have weakened in January. Economists believe economic growth slowed in the fourth quarter from the July-September period’s brisk 3.4 percent annualized rate.
The advance fourth-quarter GDP report, which was scheduled for release on Wednesday, has been delayed as the government shutdown prevented the collection of source data, including December retail sales, housing starts durable goods and trade figures.
November construction spending, trade, business inventories, factory orders as well as new home sales reports were also impacted by the government’s closure.
Other data on Tuesday showed the S&P CoreLogic Case-Shiller composite index of home prices in 20 metropolitan areas rose 4.7 percent in November on a year-on-year basis, the smallest gain since January 2015, after advancing 5.0 percent in October.
House price inflation is slowing as demand cools and housing inventory rises. The moderation in house prices, together with an easing in mortgage rates should help support demand and lift the housing market this year after struggling for much of 2018.