The S&P 500 and the Dow Jones Industrial Index were lower on Wednesday as gains in Apple shares were offset by a decline in energy and industrial companies, while the Fed remained on course for an expected interest rate hike in September.
The Fed left the Fed funds rate unchanged and reiterated its view that the economy is growing the job market is strengthening, and inflation continues to hover near the Fed’s 2 percent target since it last raised rates in June.
While technology stocks pulled the Nasdaq into positive territory and gave a boost to the S&P and the Dow, trade worries intensified as the Trump administration proposed hiking tariffs on imports from China.
Officials told reporters that Trump had directed Trade Representative Robert Lighthizer to consider a tariff rate increase on $200 billion worth of Chinese goods to 25 percent from 10 percent as part efforts to ensure that it has “the right tools in place in order to encourage China to change its actions.”
China called the move “blackmail,” and warned it would respond in kind.
Trade-sensitive stocks fell on the news, with the S&P 500 industrials index dropping 1.3 percent. Of the 11 major sectors of the S&P 500, eight ended the session in negative territory.
With the second-quarter earnings reporting season nearly two-thirds complete, analyst estimates for S&P 500 profit growth are now at 23.3 percent, up from 20.7 percent a month ago.
Apple hit an all-time high after posting results on Tuesday, beating estimates and forecasting better-than-expected sales on strong smartphone demand. The company is closing in on $1 trillion in market value.
The S&P financial index advanced after yields on benchmark 10-year Treasuries hit 3 percent for the first time since June 13.
Shares of Tesla were up in choppy trading after the bell following the electric automaker’s second-quarter earnings report.
The energy sector index was pressured by a decline in crude prices on rising domestic inventories and unexpectedly higher OPEC production.
Approximately 6.83 billion shares changed hands on the major domestic equity exchanges, as compared with a 6.21 billion share average over the past 20 trading days.
Day’s Economic News
Manufacturing activity slowed during July, amid signs that a robust economy and import tariffs were putting pressure on the supply chain, which could hurt production in the long term. Other data on Wednesday indicated private employers stepped up hiring in July, suggesting the labor market remained robust at the start of the third quarter.
The Institute for Supply Management (ISM) said its index of national factory activity fell to a reading of 58.1 last month from 60.2 in June. A reading above 50 in the ISM index indicates an expansion in manufacturing, which accounts for about 12 percent of the economy.
Trump’s “America First” trade policy has left the United States embroiled in tit-for-tat tariffs with its major trade partners, including China, Canada, Mexico and the European Union. Trump claims the United States is being taken advantage of by its trade partners.
Meanwhile, import duties could disrupt supply chains, undercut business investment and potentially put a brake on strong economic growth. The signs of rising capacity constraints could draw the attention of the Federal Reserve, which is wrapping up a two-day policy meeting on Wednesday.
The Fed is expected to leave interest rates unchanged on Wednesday after increasing borrowing costs in June for the second time this year. The Fed has forecast two more rate hikes by the end of 2018.
While the ISM’s supplier deliveries sub-index dropped 6.1 points to 62.1 last month, the reading remained high after racing to a 14-year high of 68.2 in June. The trade tensions, the robust economy, marked by labor shortages and strong domestic demand, are behind the delivery delays.
The economy grew at a 4.1 percent annualized rate in the second quarter, the fastest in nearly four years and double the 2.2 percent pace logged in the January-March period. The labor market is near or at full employment, with the jobless rate at 4.0 percent.
Separately, the ADP National Employment Report showed private payrolls surged by 219,000 jobs in July after rising by 181,000 in June.
The ADP report is jointly developed with Moody’s Analytics. While not a good predictor of the private payrolls component of the government’s more comprehensive employment report, the report nonetheless supported expectations for solid job gains in July.
A third report from the Commerce Department on Wednesday showed construction spending recorded its largest decline in more than a year during June as investment in both private and public projects fell. However, spending for the prior months was revised sharply higher.
Construction spending fell 1.1 percent, the largest decline since April 2017. Data for May was revised up to show construction outlays rising 1.3 percent instead of the previously reported 0.4 percent gain. April’s outlays increased 1.7 percent instead of the previously estimated 0.9 percent.
Spending on private residential projects fell 0.5 percent in June following a 1.3 percent increase in May. Homebuilding has been slowing, with builders citing rising material costs as well as persistent land and labor shortages. Residential investment contracted in the first half of the year.
Spending on private nonresidential structures slipped 0.3 percent in June after gaining 0.2 percent in the prior month. Overall, outlays on private construction projects fell 0.4 percent in June after increasing 0.9 percent in May.
Investment in public construction projects fell 3.5 percent, the largest decline since March 2013, after rising 3.0 percent in May. Spending on federal government construction projects declined 3.1 percent. That followed a 0.9 percent increase in May.
State and local government construction outlays plunged 3.5 percent in June, also the largest drop since March 2013, after rising 3.1 percent during the prior month.