U.S. stocks took a leg lower Thursday as a top Trump administration advisor signaled the U.S. and China still have a ways to go before reaching a deal on trade.
The S&P 500 (^GSPC) fell 0.94%, or 25.56 points, as of market close, with the Energy sector leading declines as U.S. crude oil prices (CL=F) settled lower by about 2.5%. The Dow (^DJI) declined 0.87%, or 220.77 points, paring some losses after shedding nearly 400 points earlier in the session. The Nasdaq (^IXIC) fell 1.18%, or 86.93 points.
Corporate earnings continue to provide a steady stream of stimulus for investors. As of Thursday morning, about three-quarters of the S&P 500’s market capitalization had reported fourth-quarter results, with earnings beating by 3.3% and 62% of companies exceeding their bottom-line estimates, according to an email from Credit Suisse analyst Jonathan Golub. This compares to 4.9% and 70% over the past three years.
Today, 32 companies comprising 2.8% of the S&P 500’s market capitalization will report results. These include Philip Morris (PM), Intercontinental Exchange (ICE), Marathon Petroleum (MPC) and Fiserv (FISV).
Investors continue to watch updates surrounding U.S.-China trade relations. Next week, negotiators from the U.S. and China are set to meet in Beijing for further trade talks, Treasury Secretary Steven Mnuchin confirmed to reporters Wednesday. Both sides must come to an agreement on a trade deal before the beginning of March, when the Trump administration is set to ratchet up the rate of tariffs on billions of dollars-worth of Chinese-made goods.
On Thursday, White House economic advisor Larry Kudlow said in an interview with Fox Business that there is still a “sizable distance to go” when it comes to trade negotiations, sending equities lower.
Some analysts, however, believe reaching a deal around the time of the deadline is achievable.
“We expect the U.S. and China [to] reach a substantive trade deal by early spring, allowing most or all of the tariffs, on both sides, to be removed,” Ian Shepherdson, chief economist for Pantheon Macroeconomics, wrote in a report Thursday morning. “If we’re wrong about this, the recent rally in stocks will reverse, and growth will weaken dramatically. The Fed will not be able to easy quickly in response, though, because the increase in tariffs which would follow a fundamental breakdown of the talks would push inflation up very steeply.”
Moreover, “the sharp slowdown in China, independent of the hit from the trade war, is depressing manufacturing in the U.S. and elsewhere,” Shepherdson added.
The ripple effect of international trade uncertainty has carried over to affect Europe’s largest economy. In Germany, manufacturers reported a steep decline in orders at the end of 2018, suggesting a slowdown in new investments as a result of ongoing trade tensions and providing yet another example of decelerating global growth. Factory orders fell 1.6%, or the most in six-months, in December, according to new data Wednesday. And German industrial production declined 0.4% over the month prior, below the consensus for a 0.8% increase.
Meanwhile, the European Commission cut its growth forecasts for all of the euro-area’s major economies due largely to economic weakness in Germany and Italy, Brexit concerns and the ongoing threat of the slowdown in China. The commission now sees the 19 nations of the euro-area economy expanding at a pace of 1.3% in 2019, down from 1.9% forecast in November.
STOCKS: Twitter provides tepid guidance, Canopy Growth Corporation plans to expand investment in American cannabis
Twitter (TWTR) shares declined Thursday morning after the social media company provided light revenue guidance for the current quarter. It also said it expects GAAP and cash operating expenses will rise about 20% year-over-year in 2019 as the company works to support its “existing priorities of health, conversation, revenue product and sales, and platform.” Twitter will stop reporting monthly active users, which have been on the decline, after the first quarter of 2019, and will instead break out monetizable daily active users. For the fiscal fourth quarter of 2018, Twitter reported earnings, excluding some items, of 31 cents per share on revenue of $908.8 million, exceeding expectations of 25 cents per share on revenue of $867.1 million.
Canopy Growth Corporation (CGC, WEED.TO) plans to extend its reach in the American cannabis space with total investment in U.S. hemp of up to $500 million, Canopy CEO Bruce Linton told Yahoo Finance. The Canadian cannabis company previously announced an investment of $100 million to $150 million to process and produce hemp in New York after securing a license from the state government earlier this year.
Yum Brands (YUM) reported better-than-expected same-store results of 3% for the fiscal fourth quarter, ahead of consensus expectations of 2.5%. KFC, Yum’s largest brand, posted 3% sales growth, or 20 basis points better-than-expected. However, the company missed expectations on quarterly earnings and revenue expectations. Yum delivered earnings of 40 cents per share in the fourth quarter on revenue of $1.56 billion.
Chipotle (CMG) reported strong fourth-quarter results after-the-bell on Wednesday, with same-store sales up 6.1% to the highest level in six quarters. The Mexican fast casual chain delivered earnings of $1.72 per share, ahead of consensus estimates of $1.37. Revenue was slightly better-than-expected at $1.23 billion, versus $1.19 billion estimated by consensus analysts.
ECONOMY: Initial jobless claims came in higher-than-expected last week
Initial jobless claims totaled 234,000 for the week ending February 2, according to a release Thursday from the U.S. Department of Labor. Consensus economists had called for new claims to come in at 221,000. However, initial jobless claims fell from the week prior, when 253,000 new unemployment claims were filed, or a near one-and-a-half year high.
Continuing unemployment claims were 1.736 million for the week ending January 26. This was also slightly ahead of estimates of 1.733 million, but below the week prior's downwardly revised 1.778 million continuing claims.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
Read more from Emily: