The S&P 500 edged higher on Tuesday after comments from a Trump administration official on trade with China and the Mexican economy minister on the renegotiation of the North American Free Trade Agreement provided cause for optimism.
Mexican Economy Minister Ildefonso Guajardo said his country would respond to U.S. proposals on rules for automobiles under NAFTA next week and that a deal is likely if negotiators show enough creativity and flexibility.
Earlier, stocks came off the day’s lows after Trade Representative Robert Lighthizer said he did not desire to change China’s economic system but wanted to limit the damage it causes to the United States and encourage more foreign competition.
The encouraging news on trade balanced concerns of inflation, which sent stocks lower at the start of the session.
Despite Tuesday’s slight gains, there remains concern over the cost warnings from companies, even as the current earnings season, now past the halfway mark, has produced the strongest earnings growth in seven years.
Data from the Institute for Supply Management indicated a rise in raw material costs, in part due to the tariffs on steel and aluminum imports imposed by the White House. It also showed that factory activity slowed for a second straight month in April.
Oil prices are near their highest levels since 2014, though they dropped more than 1 percent on Tuesday as the dollar remained near a four-month high.
Rising costs have stoked fears that the Federal Reserve will raise interest rates more times than expected this year. The Fed’s Federal Open Market Committee is scheduled to release its policy statement on Wednesday at the close of a two-day meeting. It is expected to keep interest rates steady but will likely encourage expectations that it will hike rates in June.
Shares of Pfizer Inc fell 3.3 percent, the greatest percentage decline on the Dow Jones Industrial Average, after the company posted its largest miss on quarterly revenue in a year as demand for key drugs fell short of estimates.
Apple rose more than 4 percent after the bell following the company’s quarterly results.
Shares of Match Group, the owner of dating app Tinder, and IAC/InterActiveCorp, Match’s parent company, fell after Facebook announced that it would add dating features to its flagship social network. Match closed out the trading day down 22.1 percent while IAC was down 17.8 percent. Facebook rose 1.1 percent.
Approximately 6.56 billion shares changed hands on the major domestic equity exchanges, as compared to the 6.54 billion share average for the full session over the past 20 trading days.
Day’s Economic News
Factory activity slowed for a second straight month in April, with manufacturers complaining about rising commodity prices in the wake of the Trump administration’s tariffs on steel and aluminum imports.
The Institute for Supply Management (ISM) survey published on Tuesday also showed shortages of skilled workers, which together with the proposed import tariffs were causing bottlenecks in the supply chain.
Rising raw material costs are the latest indication that inflation pressures are building and could attract the attention of Fed officials who began a two-day policy meeting on today. Data on Monday showed a rise in annual inflation rates during March. In addition, wages grew at their fastest pace in 11 years in the first quarter.
The Fed is not expected to raise interest rates when it concludes its meeting on Wednesday. The Fed increased borrowings costs in March and has forecast at least two more rate hikes for this year.
The ISM said its index of national factory activity dropped to a reading of 57.3 last month from 59.3 in March. A reading above 50 in the ISM index indicates growth in manufacturing, which accounts for about 12 percent of the U.S. economy.
The survey’s prices paid index increased 1.2 points to 79.3, the highest reading since April 2011. Last month, price increases occurred across 17 of 18 industry sectors. Machinery manufacturers said tariffs had increased prices for steel and other materials. They reported that “a lot of suppliers are asking for increases, and the team is battling those requests.”
The White House imposed a 25 percent tariff on steel imports and a 10 percent tariff on aluminum in March. However, on Tuesday the President postponed imposition of the tariffs on Canada, Mexico and the EU until June 1 and reached agreements for permanent exemptions for Argentina, Australia and Brazil.
The ISM’s measure of factory employment dropped in April. Transport equipment manufacturers said while business was robust, capacity constraints were a headache. They described labor as remaining “tight and getting tighter.”
Those sentiments were also shared by food, beverage and tobacco products manufacturers who said shortages of trucks and drivers had impacted delivery times.
Despite the second straight monthly drop in the ISM index, manufacturing remains underpinned by a firming global economy as well as a weakening U.S. dollar, which is boosting the competitiveness of American-made goods on the global market.
Stocks on Wall Street fell as investors worried about inflation. The dollar was trading higher against a basket of currencies while prices for U.S. Treasuries slipped.
A separate report from the Commerce Department showed construction spending unexpectedly fell in March as a sharp decline in homebuilding and renovations led to the biggest drop in investment in private construction projects in more than seven years.
Construction spending tumbled 1.7 percent. February data was revised to show construction spending increasing 1.0 percent instead of the previously reported 0.1 percent gain. Construction spending rose 3.6 percent on a year-on-year basis.
In March, spending on private construction projects declined 2.1 percent. That was the largest fall since January 2011 and followed a 1.2 percent increase in February.
Outlays on private residential projects plunged 3.5 percent, the biggest drop since April 2009, after advancing 1.2 percent in February. Spending on both single and multifamily housing projects fell in March. Spending on home renovation dropped 8.0 percent last month.
The construction data will likely subtract one-tenth of a percentage point from the government’s 2.3 percent annualized growth rate estimate for first-quarter gross domestic product, which was published last Friday.
Apple announced financial results for its fiscal 2018 second quarter ended March 31, 2018. The Company posted quarterly revenue of $61.1 billion, an increase of 16 percent from the year-ago quarter, and quarterly earnings per share of $2.73, up 30 percent. International sales accounted for 65 percent of the quarter’s revenue.
“We’re thrilled to report our best March quarter ever, with strong revenue growth in iPhone, Services and Wearables,” said Tim Cook, Apple’s CEO. “Customers chose iPhone X more than any other iPhone each week in the March quarter, just as they did following its launch in the December quarter. We also grew revenue in all of our geographic segments, with over 20% growth in Greater China and Japan.”
“Our business performed extremely well during the March quarter, as we grew earnings per share by 30 percent and generated over $15 billion in operating cash flow,” said Luca Maestri, Apple’s CFO.
He went on to say, “With the greater flexibility we now have from access to our global cash, we can more efficiently invest in our US operations and work toward a more optimal capital structure. Given our confidence in Apple’s future, we are very happy to announce that our Board has approved a new $100 billion share repurchase authorization and a 16 percent increase in our quarterly dividend.”
The Company will complete the execution of the previous $210 billion share repurchase authorization during the third fiscal quarter.
Reflecting the approved increase, the Board has declared a cash dividend of $0.73 per share of Apple’s common stock payable on May 17, 2018 to shareholders of record as of the close of business on May 14, 2018.
From the inception of its capital return program in August 2012 through March 2018, Apple has returned $275 billion to shareholders, including $200 billion in share repurchases.
Apple is providing the following guidance for its fiscal 2018 third quarter:
Revenue between $51.5 billion and $53.5 billion
Gross margin between 38 percent and 38.5 percent
Operating expenses between $7.7 billion and $7.8 billion
Other income/(expense) of $400 million
Tax rate of approximately 14.5 percent