The S&P 500 ended the trading day on Wednesday slightly in the red but well above its session low after testimonies to Congress from trade and central bank officials as well as Trump’s former lawyer brought few major surprises.
Trade representative Robert Lighthizer told a congressional hearing the United States and China still had hard work ahead to settle their trade dispute in his first public comments since Trump announced a delay to Chinese import tariffs on Sunday.
Federal Reserve Chair Jerome Powell told Congress the central bank would stop shrinking its $4 trillion balance sheet this year, ending a process investor believe is at cross-purposes with its current pause on interest rate hikes.
The S&P had drifted gradually higher after hitting a session low around 10.30 a.m. and swerved in and out of positive territory in afternoon trading.
Trump’s former lawyer, Michael Cohen, called the president a “conman” but said he had no direct evidence Trump colluded with Moscow to bolster his White House campaign ahead of the 2016 election.
Optimism on trade and Fed policy had raised equities from December lows in recent weeks, with the S&P 500 index roughly 5 percent below its record closing high hit in late September.
Of the 11 major S&P sectors, seven ended the day lower, with the healthcare index chalking up a 0.5 percent decline weighing the most. Health insurer and pharmacy benefit manager shares slipped after a Senate hearing and the introduction of a bill aimed at moving all Americans into a government health insurance program on Tuesday.
A 15 percent drop in Mylan NV shares was another drag after the generic pharmaceutical company missed quarterly earnings estimates and forecast weak 2019 earnings.
Best Buy rose 14 percent after the consumer electronics retailer exceeded consensus estimates for quarterly same-store sales, while announcing a dividend hike and a share buyback plan.
Approximately 7.30 billion shares changed hands on the major domestic equity exchanges, as compared to the 7.34 billion share average over the past 20 trading days.
Day’s Economic News
The country’s trade deficit widened sharply in December as slowing global demand and a strong dollar weighed on exports, another sign that economic growth slowed in the fourth quarter.
Other data from the Commerce Department on Wednesday indicated that new factory orders barely rose in December and business spending on equipment was much weaker than previously thought, pointing to a softening in manufacturing activity.
The reports, which added to weak December data on retail sales and housing starts, could mean a reduction in fourth-quarter GDP estimates. However, some of the reduction in growth from the goods trade gap and weak business spending on equipment could be offset by a strong increase in inventories in December.
The goods trade deficit rose 12.8 percent to $79.5 billion in December, boosted also by an increase in imports. Exports fell 2.8 percent amid steep declines in shipments of foods, industrial supplies and capital goods. Imports increased 2.4 percent driven by food and capital and consumer goods.
Retail inventories increased 0.9 percent in December after falling 0.4 percent in the prior month. Retail inventories, excluding motor vehicles and parts, the component that goes into the calculation of gross domestic product, rebounded 1.0 percent in December after dropping 0.9 percent in November.
Consensus growth estimates for the fourth quarter are currently around a 2.0 percent annualized rate. The government will publish the fourth-quarter GDP report on Thursday. The economy grew at a 3.4 percent pace in the third quarter.
In another report on Wednesday, the Commerce Department indicated that factory goods orders edged up 0.1 percent in December amid declining demand for machinery and electrical equipment, appliances and components.
Data for November was revised slightly up to show factory orders falling 0.5 percent instead of the previously reported 0.6 percent drop.
Manufacturing, which accounts for about 12 percent of the economy, is slowing as some of the increased capital spending resulting from last year’s $1.5 trillion tax cut package begins to fade. In addition, the strong dollar and cooling growth in Europe and China are hurting exports. Lower oil prices are also slowing purchases of equipment for oil and gas well drilling.
In December, orders for machinery dropped 1.0 percent after tumbling 2.0 percent in November. Orders for mining, oil field and gas field machinery plunged 5.2 percent after rising 1.9 percent in November. There were also decreases in orders for industrial machinery as well as turbines, generators and other power transmission equipment in December.
Orders for electrical equipment, appliances and components fell 0.3 percent after dropping 2.6 percent in November. Orders for transportation equipment rose 3.2 percent in December after increasing 3.1 percent in the prior month.
Orders for civilian aircraft and parts rose 28.4 percent in December. Motor vehicles and parts orders rose 2.4 percent.
The Commerce Department also said December orders for non-defense capital goods excluding aircraft, which are a measure of business spending plans on equipment, fell 1.0 percent instead of the 0.7 percent drop reported last week.
Orders for these so-called core capital goods declined 1.1 percent in November. Shipments of core capital goods, which are used to calculate business equipment spending in the gross domestic product report, were unchanged in December instead of the previously reported 0.5 percent increase. Core capital goods shipments fell 0.2 percent in November.