The major domestic equity indexes closed higher on Wednesday in response to word that Trump would hold off on imposing tariffs on imported cars and parts, which in turn eased growth concerns even as the day’s economic data was a disappointment.
The indexes saw their second straight day of gains following Monday’s steep sell-off, although the S&P 500 index remained more than 3% below its all-time high reached just over two weeks ago.
The prospect of a six-month postponement of tariffs on imported autos and auto parts, along with Treasury Secretary Steven Mnuchin’s remarks that he expects trade talks to resume soon in China, spurred the markets which began the trading in a selling mood after the underwhelming economic reports.
The Commerce Department reported that retail sales posted a surprise decline during April as consumers spent less. A separate report from the Labor Department indicated industrial production fell unexpectedly during April.
Of the 11 major sectors in the S&P 500 index, eight ended the session in positive territory, with communications services enjoying the largest percentage gain, led by Alphabet and Facebook.
With 455 of S&P 500 companies having posted results, first-quarter earnings season is winding down. Of those who have reported, 75.2% have exceeded expectations. The consensus now is for first-quarter earnings growth of 1.2%, a significant turnaround from the 2% loss seen on April 1.
Macy’s fell 0.5% after the department store beat quarterly expectations but said the recent tariff hikes on Chinese goods will hurt its furniture business.
Agilent Technologies was the worst performer of the S&P 500, falling 11.0% after the medical equipment maker reported quarterly profit that fell short of consensus estimates.
Uber and Lyft saw their second straight day of gains following their underwhelming post-debut performances. Their shares advanced 3.3% and 7.0%, respectively.
Cisco rose more than 3% in after-market trading following the company’s earnings release. Walmart Inc is expected report before the market opens on Thursday.
Approximately 6.29 billion shares changed hands on the major domestic equity exchanges, as compared to the 7.00 billion share average over the past 20 trading days.
Day’s Economic Data – Growth Slows
Retail sales were lower during April as households cut back on purchases of motor vehicles and a range of other goods, pointing to a slowdown in economic growth after a temporary enhancement from exports and inventories during the first quarter.
The moderation in economic activity was underscored by other data on Wednesday showing a drop in industrial production last month. The economy is slowing as the stimulus from the White House’s $1.5 trillion tax cut package fades.
Trump’s escalating trade war with China, which triggered a steep U.S. stock market sell-off, is seen hurting business confidence and undercutting spending on equipment. Following the weak reports on Wednesday, some economists cut their second-quarter growth estimates.
The Commerce Department said retail sales slipped 0.2% last month. Data for March was revised slightly up to show retail sales surging 1.7%, the largest increase since September 2017, instead of the previously reported 1.6% jump.
Economists polled by Reuters had forecast retail sales gaining 0.2% in April. Retail sales in April increased 3.1% from a year ago.
Excluding automobiles, gasoline, building materials and food services, retail sales were unchanged in April after an upwardly revised 1.1% acceleration in March.
These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously reported to have soared 1.0% in March.
Meanwhile, consumer spending, which accounts for more than two-thirds of economic activity, grew at a 1.2% annualized rate in the first quarter, the slowest in a year.
Although March’s strong core retail sales set consumer spending on an upward trajectory in the second quarter, April’s weakness suggested the pickup in consumption could be moderate.
Morgan Stanley cut its consumer spending growth estimate for the second quarter to a 1.6% annualized rate from a 2.0% pace. The bank lowered its second-quarter GDP growth estimate to a 1.2% rate from a 1.5% pace.
In separate report on Wednesday, the Federal Reserve said industrial production fell 0.5% in April after rising 0.2% in March. Manufacturing output dropped 0.5% last month as motor vehicles and parts production tumbled 2.6%. Manufacturing production was unchanged in March.
In April, sales at auto dealerships dropped 1.1% after accelerating 3.2% in the prior month, the Commerce Department said. Online and mail-order retail sales fell 0.2% in April.
Sales at building materials and garden equipment and supplies dealers were down 1.9%. Receipts at clothing stores slipped 0.2%, likely reflecting deep price discounting by retailers trying to work off excess inventory. Households also spent less on personal grooming.
Sales at furniture outlets were flat. But receipts at service stations increased 1.8%, likely boosted by more expensive gasoline. Receipts at hobby, musical instrument and bookstores gained 0.2%. Sales at bars and restaurants climbed 0.2%.