U.S. stocks ended a choppy session slightly lower as investors sought tangible details of a trade deal between the U.S. and China and considered a handful of retail earnings reports.
The S&P 500 (^GSPC) slipped 0.11%, or 3.16 points, as of market close. The Dow (^DJI) slipped 0.05%, or 13.02 points, while the Nasdaq (^IXIC) edged down 0.02%, or 1.21 points.
Investors this week have been starved for specifics in a potential formal trade deal between the U.S. and China, which could reportedly come as soon as this month. A deal would reportedly produce a roll-back of tariffs from both countries and an increase in Chinese purchases of U.S. products, but it is unclear whether an agreement would resolve some of the structural changes Washington has demanded of China when it comes to forced technology transfers and intellectual property protections.
The three major indices have wavered this week in amid a lack of new major updates.
“I would say at this point we're pretty nearly fully priced-in with regards to a trade agreement with China, which has been a big overhang for the market, a big uncertainty in the market now,” Mark Heppenstall, chief investment officer at Penn Mutual Fund Asset Management, said in an interview with Yahoo Finance. “So to me, a little bit of ‘buy the rumor, sell the news’ type of mindset is happening now. However, I do think if they come to the agreement, that is definitely a long-term constructive factor for equity valuations.”
Heppenstall added that he is not surprised to see equity gains losing a bit of steam in recent sessions, given the strong rebound U.S. stocks saw at the start of the year.
“There was a wave of pessimism in the fourth-quarter and renewed optimism so far in the first quarter, so I do think that we’re probably going to take a pause here at this point just in terms of the pace of the appreciation,” he said. “The selloff was pretty remarkable, the recovery has been pretty remarkable, so to me, sort of the market taking a breather makes sense.”
China’s trade war-softened economy has also remained a focus. Chinese Premier Li Keqiang Tuesday morning released a gross domestic product growth target for China in the range of 6% to 6.5% for 2019, representing a slowdown from the 6.6% growth the country saw in 2018. Last year’s growth rate was the slowest in nearly three decades. Li also announced a batch of cuts in taxes and fees in a move to provide stimulus to the economy, and said the government will cut its value-added tax for manufacturers by 3 percentage points and slash a duty for transportation and construction by 1 percentage point.
Elsewhere, the latest remarks from Federal Open Market Committee members have continued to point to a patient stance and “wait-and-see” approach for future rate hikes and policy normalization from the central bank. Federal Reserve Bank of Boston President Eric Rosengren, a voting member of the Federal Open Market Committee, said in a prepared speech Tuesday that he thinks the Fed has reached an “appropriate interest rate” based on what FOMC officials have observed in the current economy.
“Given that we’re not seeing a lot of overheating in the economy, given that the ebullience in the financial markets seems to have subsided somewhat, I think we can be patient...and respond appropriately depending on what we see,” Rosengren said in his speech to the National Association of Corporate Directors’ New England Chapter.
These remarks – which represented a departure from Rosengren’s typically more hawkish monetary policy stance – echoed what FOMC officials have been telegraphing for monetary policy direction since they decided to hold the benchmark interest rate at its current band January.
STOCKS
Target (TGT) posted results for the holiday season that exceeded Wall Street’s expectations, and its full-year adjusted earnings per share of $5.39 represented a new company record. Fourth-quarter adjusted EPS of $1.53 was in-line with estimates, while Target’s comparative same-store sales increase of 5.3% exceeded the 5.1% pace expected. Fourth quarter revenue was $22.98 billion, ahead of $22.95 billion expected. Target sees full-year comp sales up in the low to mid-single digits, versus the 5% growth it saw in FY 2018, the strongest rate of increase since 2005. Target also sees full-year adjusted EPS of between $5.75 to $6.05, with the midpoint of the range ahead of the $5.64 analysts expect.
Kohl’s (KSS) delivered better-than-expected fourth-quarter results, offered strong guidance for the current quarter and boosted its dividend, sending shares rising in early trading. Fourth-quarter adjusted EPS of $2.24 was 6 cents ahead of expectations, and comp sales growth of 1% exceeded estimates of 0.2%. The company’s full-year adjusted EPS guidance range of $5.80 to $6.15 came ahead of estimates of $5.75. Kohl’s sees full-year comp sales growth of between flat and up 2%.
Salesforce (CRM) delivered guidance for the fiscal first quarter that fell short of consensus expectations, eclipsing strong sales and earnings for the fiscal fourth quarter. The cloud software company delivered fourth-quarter adjusted earnings of 70 cents, or 15 cents higher than Bloomberg-compiled consensus estimates. Quarterly sales of $3.60 billion exceeded expectations of $3.56 billion. Salesforce sees first quarter adjusted EPS between 60 cents to 61 cents on revenue of between $3.67 billion to $3.68 billion, falling short of estimates of EPS of 63 cents and sales of $3.7 billion.
ECONOMY
U.S. new-home sales for single-family houses rose to a seasonally adjusted annual pace of 621,000 in December, the Census Bureau reported Tuesday. Results for new-home sales in December, released on delay due to the partial government shutdown, rose 3.7% from November’s downwardly revised seasonally adjusted rate of 599,000. Consensus economists had expected to see an 8.7% decline from November’s previously reported rate of 657,000.
The Markit U.S. services purchasing managers’ index rose to a reading of 56 in February from 54.2 in January, IHS Markit reported Tuesday. This was broadly in-line with the preliminary February reading of 56.2. The result points to the fastest rate of growth in the services sector since July 2018.
Last week, IHS Markit reported that the U.S. manufacturing purchasing managers’ index declined to an 18-month low in February.
“The U.S. PMI surveys tell a tale of two economies in February, with any slowdown story confined to the goods-producing sector,” Chris Williamson, chief business economist at IHS Markit, said in a statement. “While manufacturing struggled, with the surveys consistent with a near-stalling of factory output and order books, the service sector remained encouragingly resilient.”
The Institute for Supply Management reported growth in economic activity in the non-manufacturing sector February, with its headline non-manufacturing index rising to 59.7 for the month from 56.7 in January. Consensus economists expected a February reading of 57.4. Readings above 50 indicate expansion.
“Respondents are concerned about the uncertainty of tariffs, capacity constraints and employment resources; however, they remain mostly optimistic about overall business conditions and the economy,” Anthony Nieves, chair of the ISM non-manufacturing business survey committee, said in a statement.
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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