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Stock Market News For May 18, 2018

Zacks Equity Research
Greenbrier (GBX) possesses the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

U.S. stock markets ended lower on Thursday after President Donald Trump expressed doubts about the possibility of successful trade negotiations with China. All three major indexes closed in the negative territory. Moreover, rising yields on the U.S. government bonds and geopolitical tensions weighed on investors to such an extent that a strong showing by the energy sector failed to stop a slide in stock prices.

The Dow Jones Industrial Average (DJI) closed at 24,713.98, decreased 0.2%. The S&P 500 Index (INX) decreased 0.1% to close at 2,720.13. The Nasdaq Composite Index (IXIC) closed at 7,382.47, decreased 0.2%. A total of 6.37 billion shares were traded on Thursday, lower than the last 20-session average of 6.65 billion shares. Advancers outnumbered decliners on the NYSE by 1.15-to-1 ratio. On the Nasdaq, advancers had an edge over decliners by 1.52-to-1 ratio. The CBOE VIX increased 0.8% and closed at 13.43.

How Did the Benchmarks Perform?

The Dow lost 0.2%. Notably, 10 of the 30-stocks in the blue-chip index closing in the green while 19 traded in the red and 1 stock remained unchanged.

The S&P 500 decreased 0.1% led by 0.8% decrease of the Utilities Select Sector SPDR (XLU) and 0.5% decrease of both the Technology Select Sector SPDR (XLK) and Real Estate Select Sector SPDR (XLRE) partially curtailed by 1.5% gain of Energy Select Sector SPDR (XLE). Notably, 5 out of 11 sectors of the benchmark index ended in negative territory.

The Nasdaq Composite also decreased 0.2% led by fall in large tech stock’s prices after President Trump expressed his doubt about the possibility of a successful trade negotiation with China.

Trump Doubts on Successful China Trade Negotiation

On May 17, President Donald Trump casts doubts on the possibility of a successful outcome from ongoing trade related negotiations with China. Currently, a high level Chinese government delegation is in Washington to meet for a second round of talks to chalk out an amicable solution.

Trump commented during an appearance with NATO Secretary-General Jens Stoltenberg that Beijing had become too “spoiled” and that his expectations for the negotiations were low.

In the first week of May, a high-level U.S. delegation led by the Treasury Secretary Steven Mnuchin visited China to sort out differences of opinion between the two countries. The delegation took a hard line approach to bargaining with China. Munchin handed over a letter demanding a list of steps that the United States wants China to take immediately.

China has refrained from committing to any U.S. demands so far. The two countries will again sit for a second round of trade negotiation talks this week. However, as things stands, it is highly unlikely that any concrete solution is likely to emerge from this round of meetings as well.

Oil Price Boost Fails to Uplift Market

On May 17, the July Brent Crude (LCON8) edged up 2 cents to settle at $79.30 a barrel on ICE Futures Europe, after hitting $80.50, its highest level since November 2014. Concerns that imposition of sanctions on Iran by the United States will limit the former’s oil production boosted oil prices. The U.S. government also warned about the possibility of secondary sanctions imposed on European companies who continue to deal with Iran.

Russell 2000 and U.S. Government Bond Yields Continue to Rise

The small-cap heavy Russell 2000 index gained 0.6% to 1,625.29 after touching a new high of 1,627 in Thursday’s trading. This was the index’s second straight record closing.

On Thursday, yield on 10-year Treasury note extended its gain further to 3.11%, after hitting a seven year high of 3.07% on Tuesday. A yield of 3% on 10-year Treasury note is generally regarded as a psychological barrier at which stage flight of capital takes place from risky equities to safe haven bonds.

Cisco and Walmart Plummet Despite Strong Earnings Results

On Thursday, share price of Cisco Systems Inc. CSCO and Walmart Inc. WMT declined 3.8% and 1.9%, respectively, despite reporting strong earnings results. It seems that the investors’ expectations have skyrocketed this earnings session where even a strong result fails to excite them.

Cisco’s third-quarter of fiscal 2018 earnings of $0.66 per was ahead of the Zacks Consensus Estimate by a penny. Net revenues as reported were $12.463 billion, which topped the Zacks Consensus Estimate of $12.421 billion. (Read More: Cisco Q3 Earnings & Revenues Beat Estimates, Up Y/Y)

Walmart’s first-quarter of fiscal 2019 adjusted earnings of $1.14 per outpaced the Zacks Consensus Estimate of $1.12. Total revenues of $122.7 billion topped the Zacks Consensus Estimate of $120 billion. (Read More: Walmart's Q1 Earnings & Sales Jump Y/Y, Online Sales Up)

Economic Data

The Labor Department reported that initial claims for state unemployment benefits rose 11,000 to a seasonally adjusted 222,000 for the week ended May 12. The figure was higher than the consensus estimate of 216,000. However, the number of Americans seeking jobless benefits fell to its lowest level in 45 years.

Stock That Made Headline

Nordstrom's Q1 Earnings Beat, Soft Comps Hurt Stock

Nordstrom Inc. JWN reported solid top- and bottom-line numbers for first-quarter fiscal 2018 as both earnings and sales beat estimates. (Read More)

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