U.S. stocks ended slightly lower Tuesday, paring losses after comments from President Donald Trump earlier in the day weakened the prospects for a breakthrough in U.S.-China trade talks, as negotiators from both countries met in Shanghai. New reports on U.S. pending home sales and consumer confidence came in stronger-than-expected, helping to buoy sentiment.
Meanwhile, corporate earnings results roll in, and investors continue to await the latest monetary policy decision from the Federal Reserve Wednesday afternoon.
Here were the main moves in the market by the end of regular U.S. equity trading:
WTI crude oil futures (CL=F): +2% to $58.05 per barrel at settlement
Tuesday morning, Trump suggested in a Twitter post that China was being uncooperative in trade negotiations, saying “they always change the deal in the end to their benefit.” He added that China continues “to ripoff the USA, even bigger and better than ever before,” and that “no deal at all” could be the eventual outcome even after more discussions get under way.
The comments come as U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer kick off the first in-person meetings with their Chinese counterparts since May in Shanghai. Ahead of these negotiations, investors had already held low expectations for a breakthrough to emerge from the talks, as both sides have continuously refused to make concessions the other has demanded for an eventual deal.
Meanwhile, the boost U.S. equity markets had received over the past couple of weeks as traders hoped for lower rates from the Federal Reserve petered out Tuesday morning, as uneasiness over the eventual monetary policy decision and outlook set in.
As the Federal Open Market Committee began the first of its two-day meeting Monday, markets priced in a 79.1% probability of a 25-basis point cut, with the balance comprising the probability for a 50-basis point cut. The likelihood of a more aggressive cut to keep the domestic economy chugging along has progressively edged lower, as data including Friday’s report on gross domestic product came in stronger-than-expected.
However, on Tuesday, the Bureau of Economic Analysis reported that June’s core personal consumption expenditures (PCE) index, which excludes volatile food and energy prices, rose 1.6% over last year, falling short of consensus expectations for a 1.7% increase. May’s core PCE was downwardly revised to see just a 1.5% year-over-year rise.
The reading on core PCE – the Fed’s preferred inflation gauge – reinforced concerns of inflation remaining persistently below the central bank’s 2% target, providing room for the Fed to potentially slash interest rates to encourage borrowing and spending.
Consumer confidence, home-buying intentions jump in July
Other indicators released Tuesday underscored ongoing strength in the domestic economy.
Consumer confidence rose the the highest level of 2019 in July, according to the Conference Board’s Consumer Confidence Index. The headline index came in at 135.7 for the month, far surpassing consensus expectations for just 125.0. June’s reading was also upwardly revised to 124.3, from 121.5 previously.
In July, sub-indices tracking consumers’ assessments of both the shorter and longer-term outlook also improved. The labor market differential, or the difference between the percentage of consumers saying jobs are plentiful and those saying jobs are difficult to find, rose to 33.4, the highest since May.
Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., July 29, 2019. REUTERS/Brendan McDermid
"After a sharp decline in June, driven by an escalation in trade and tariff tensions, Consumer Confidence rebounded in July to its highest level this year," Lynn Franco, Senior Director of Economic Indicators at The Conference Board, said in a statement. "Consumers are once again optimistic about current and prospective business and labor market conditions. In addition, their expectations regarding their financial outlook also improved. These high levels of confidence should continue to support robust spending in the near-term despite slower growth in GDP."
Meanwhile, pending home sales climbed 2.8% in June, rising for a second straight month, according to the National Association of Realtors (NAR). All four of the major regions NAR tracked saw increases during the month, led by advances in home-buying intentions in the West.
Earnings update
Despite fears of a weaker earnings season compared to last year, many companies have topped expectations in recently released results.
Companies comprising more than half of the S&P 500’s market capitalization reported results as of Tuesday morning. Earnings per share (EPS) are on pace to rise 3.3% over last year, under the assumption of a typical beat rate for the rest of the quarter, according to data compiled by Credit Suisse analyst Jonathan Golub Tuesday.
Health-care companies – which have lagged the broader market for the year to date – including Merck & Co. (MRK), Eli Lilly (LLY), Gilead (GILD) and Celgene (CELG) report results Tuesday. After market close, tech giant Apple (AAPL) also posts quarterly results, with the Street anticipating a decline in iPhone revenues, at least partially offset by growth in wearable and services sales.
The Dow was pressured even after component companies Procter & Gamble (PG) and Merck & Co. reported better-than-expected quarterly results.
Consumer products company Procter & Gamble posted fiscal fourth-quarter earnings and sales that beat expectations, with CFO Jon Moeller underscoring to Yahoo Finance that the “U.S. consumer is tremendously strong.” Adjusted earnings of $1.10 per share topped expectations by 5 cents. Revenue of $17.09 billion was also ahead of consensus estimates, and P&G’s 7% organic sales growth for the quarter far exceeded last year’s 1% increase. The company’s health-care segment headed its top-line growth for the year, with organic sales up 10% year-over-year. P&G’s guidance for fiscal 2020 organic sales growth of as much as 4% also topped expectations.
Merck also delivered a strong top- and bottom-line beat and raised full-year guidance in its fiscal second-quarter report Tuesday morning. Results were driven by demand for the company’s cancer therapy product Keytruda, with quarterly revenue of $2.63 billion exceeding expectations by $200 million. These sales grew 58% over last year, surpassing the 15% year-over-year increase in sales Bristol-Myers Squibb posted for its competing drug Opdivo.
Meanwhile, printing company Xerox (XRX) beat consensus expectations for second-quarter profit, while sales fell short of expectations. Second-quarter adjusted EPS of 99 cents was 11 cents higher-than-expected, and sales of $2.29 billion were slightly short of estimates for $2.32 billion. Xerox maintained its full-year adjusted earnings, free cash flow and adjusted operating margin guidance as the company works to update its cost structure over the coming quarters.
After market close on Monday, newly public plant-based meat substitute-maker Beyond Meat (BYND) reported a quarterly loss that was wider than consensus expectations, and announced it would be selling more shares. The news sent the high flying stock down double-digit percentages to below $200, before it pared losses mid-morning Tuesday.
