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[BRIEFING.COM] The S&P 500 chipped in a 0.2% gain on Friday after President Donald Trump again signaled China's desire to make a deal on trade. Disappointing guidance from chipmakers, however, kept gains in check. The Dow Jones Industrial Average gained 0.5%, the Nasdaq Composite lost 0.2%, and the Russell 2000 gained 0.2%. For the week, the S&P 500 declined 1.6%.
Speaking from the White House, President Trump reiterated his claim that China wants to make a trade deal. He said that China sent a "large" list of things they're willing to do, but the list is not yet in-line with the President's standards. Nevertheless, the market, desperate for a positive solution on trade, reacted positively to the comments.
Also, a dovish perspective from Fed Vice Chair Richard Clarida on Friday helped ease some early angst.
Mr. Clarida thinks the Fed is getting closer to a neutral rate, which is a somewhat contrasting view from Fed Chair Jerome Powell in October who said the Fed is still a "long way from neutral." The Fed-sensitive 2-yr yield subsequently dropped six basis points to 2.80%, and the benchmark 10-yr yield lost four basis points to 3.07%. The U.S. Dollar lost 0.5% to 96.46.
Proving strong support for the broader market were the real estate (+1.4%), utilities (+1.3%), energy (+1.1%), materials (+1.0%), and health care (+1.0%) sectors, which combine for roughly 30% of the S&P 500's market capitalization.
Conversely, the top-weighted information technology sector shed 0.1%, though recouped most of its losses largely due to resiliency from Apple (AAPL 193.53, +2.12, +1.1%). Discouraging guidance from NVIDIA (NVDA 164.43, -37.96, -18.8%) and Applied Materials (AMAT 35.40, +0.38, +1.1%) weighed on the sector early. Weaker-than-expected chip demand, which left NVIDIA with excess inventory, led to fourth quarter revenue and EPS guidance that was well below current consensus estimates. Applied Materials also lowered its top and bottom line guidance below consensus but was able to add some gains. The Philadelphia Semiconductor Index lost 1.2%.
Facebook (FB 139.53, -4.32) weighed on the communication services sector (-0.4%) with a loss of 3.0%. On-going negative publicity surrounding the company has helped pull the stock back to its lowest level since April 2017. Also, Amazon (AMZN 159.41, -26.03, 1.6%) and retail companies dragged on the lagging consumer discretionary sector (-0.5%).
Retail companies continued to struggle after Nordstrom (JWN 50.93, -8.06, -13.7%) and Williams-Sonoma (WSM 53.76, -6.80, -11.2%) released mixed earnings reports. Nordstrom reported a significant one-time charge that knocked EPS lower by $0.28, and its revenue and its full-price comparable sales figures were on the softer side. Williams-Sonoma guided its revenue to the low end of Wall Street estimates. Both companies beat earnings expectations, though. The SPDR S&P Retail ETF (XRT 46.46, -0.65) lost 1.4% today and 4.5% this week.
Separately, WTI crude added 0.1% to $56.52/bbl, extending its rebound effort to its third straight session after snapping a 12-session losing streak.
Overseas, reports from the United Kingdom indicated that the 1922 Committee received 48 letters needed to trigger a vote of no-confidence in Prime Minister Theresa May. UK's FTSE shed 0.4%, and the British pound rose 0.4% to 1.2830 against the dollar, which is far from a frantic move in the market that should be most impacted by Brexit fears.
Reviewing Friday's economic data, which included Industrial Production and Capacity Utilization for October and Net Long-Term TIC Flows for August:
- Industrial production increased 0.1% in October (Briefing.com consensus +0.3%) following a downwardly revised 0.2% increase (from +0.3%) in September. The capacity utilization rate dipped to 78.4% from an upwardly revised 78.5% (from 78.1%) in September, which was the highest rate since January 2015.
- The key takeaway from the report is that manufacturing output increased for the fifth straight month despite a big drop in motor vehicle assemblies, which underscores solid activity otherwise for the manufacturing base.
Looking ahead, investors will receive the NAHB Housing Market Index on Monday.
- Nasdaq Composite +5.0% YTD
- Dow Jones Industrial Average +2.8% YTD
- S&P 500 +2.3% YTD
- Russell 2000 -0.5% YTD
Week In Review: Stocks Lose Ground Over Continuing Growth Concerns
Wall Street tumbled this week, with consumer discretionary and information technology stocks leading the retreat.
Concerns over peak earnings growth continued to linger, and a further breakdown in oil prices also weighed on investor sentiment. Brexit reentered the mix this week, and, as always, U.S.-China trade headlines were plentiful. The S&P 500 lost 1.6%, the Dow lost 2.2%, the Nasdaq lost 2.2%, and the Russell 200 lost 1.4%.
Within the tech space (-2.5%), Apple (AAPL) got off to a rough start after two more suppliers, Lumentum (LITE) and Qorvo (QRVO), cut their guidance. Disappointing guidance from chipmakers NVIDIA (NVDA) and Applied Materials (AMAT) also weighed on the sector, with NVIDIA plunging nearly 20% on Friday.
Meanwhile, a host of retailers reported earnings this week, including Walmart (WMT), Macy's (M), Home Depot (HD), and Nordstrom (JWN) to name a few. The reports generally showed better-than-expected profits, but shares sold off in response nonetheless. The SPDR S&P Retail ETF (XRT) lost 4.5%, while the consumer discretionary sector lost 3.8%.
The oil-sensitive energy space (-2.1%) fell in tandem with WTI crude, which dropped 6.1% to $56.52/bbl and extended its losing streak to 12 sessions before bouncing back.
Saudi Arabia announced it would reduce its oil exports in December by 500,000 barrels a day due to a seasonal slowdown in demand, but President Trump rebuked that decision on Twitter. There were also reports that OPEC and non-OPEC allies could be entertaining a plan to cut production by 1.4 million barrels per day in 2019. However, OPEC cut its 2019 oil demand forecast for the fourth consecutive month.
In Washington, Congresswoman Maxine Waters, who is set to take over the House Financial Services Committee this January, vowed that the days of weakening bank regulations will be coming to an end. Ms. Waters' comments should not have been seen as a surprise as it was understood this would likely be the case following the midterm election results. However, a knee-jerk sell off in the financial space, which finished the week lower by 1.3%, suggested otherwise.
Conversely, outperforming the broader market were the lightly-weighted real estate (+0.8%), materials (+0.4%), and the heavily-weighted health care (-1.1%) spaces.
Elsewhere, U.S. Treasuries saw heightened demand amid market turbulence and a softer-sounding perspective from Fed Vice Chair Richard Clarida. Mr. Clarida conceded on Friday that he thinks the Fed is getting closer to a neutral rate, which is a dovish stance compared to Fed Chair Jerome Powell's "long way from neutral" comments from last month. The 2-yr yield lost 13 basis points to close at 2.80%, and the 10-yr yield lost 12 basis points to close at 3.07%.
This week saw the market bounce on any U.S.-China trade development no matter if the news was new or repetitive.
A Financial Times report suggested China and the U.S. are trying to reach a trade truce ahead of the G-20 meeting at the end of the month, but clarification from the U.S. Trade Representative's office said that the next round of tariffs for China are not on hold. President Donald Trump chimed in that China is open to a trade deal, though a list of concessions reportedly presented from China before did not mention structural reforms that have been demanded by President Donald Trump.
At the very least, National Economic Council Director Larry Kudlow did confirm that the U.S. and China have resumed trade discussions.
Overseas, UK Prime Minister Theresa May received cabinet approval for her draft withdrawal statement for Brexit. However, Brexit secretary Dominic Raab, and several other ministers, resigned after the approval, and reports indicate that the 1922 Committee received 48 letters needed to trigger a vote of no-confidence in Prime Minister Theresa May. The vote could take place next week.
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