Each of the three major indices rose to record highs Wednesday as trade optimism buoyed equities and a deluge of economic data came in stronger than expected.
The Consumer Discretionary and Communication sectors led gains in the S&P 500, while Industrials lagged. The rise in the 30-stock Dow was led by gains in shares of McDonald’s (MCD) and Home Depot (HD).
Here’s where markets settled at the end of regular equity trading Wednesday:
Both U.S. and Chinese officials have recently touted progress in reaching a phase one trade agreement, helping equities push to record levels after last week’s pause.
President Donald Trump said Tuesday afternoon that trade talks with China were nearly done and corroborated China’s account of a productive phone call between top trade negotiators from both sides earlier this week.
“We’re in the final throes of a very important deal,” Trump said at the White House, according to Bloomberg. “It’s going very well.”
Separately, Trump told former Fox News host Bill O’Reilly that he has been waiting on a deal because “it’s got to be a good deal” for the U.S., underscoring confidence that the relative strength of the domestic economy will offer leverage in negotiating an agreement.
Government economic data Tuesday showed the U.S. goods trade deficit unexpectedly narrowed to the most in over a year in October as imports contracted to the lowest level in two years.
On Wednesday, U.S. economy activity was shown to have risen more than previously reported in the third quarter, according to the second print on 3Q GDP. The Federal Reserve said in its November Beige Book Wednesday afternoon that economic activity expanded “modestly from October through mid-November, similar to the pace of growth seen over the prior reporting period.”
Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., November 18, 2019. REUTERS/Brendan McDermid
But in China, economic data has continued to deteriorate as tariffs undercut manufacturing sector profitability. Industrial profits slumped 9.9% in October to 427.56 billion yuan, or about $60.75 billion, according to National Bureau of Statistics data Wednesday. The decline in industrial earnings steepened from September’s 5.3% decrease and marked the largest drop since the beginning of the year.
ECONOMY: U.S. economy grew faster than expected in the third quarter
The U.S. economy grew at a 2.1% pace in the third quarter, according to the Bureau of Economic Analysis’ second print on 3Q GDP. This was a faster pace compared to the first print of 1.9% reported in late October. Consensus economists had expected this rate to have remained unchanged, according to Bloomberg data.
“Within the second estimate for the third quarter, upward revisions to private inventory investment, nonresidential fixed investment and personal consumption expenditures (PCE) was partially offset by a downward revision to state and local government spending,” the Bureau of Economic Analysis said in a statement.
Beneath the headline GDP print, personal consumption – which accounts for about two-thirds of U.S. economy activity – rose 2.9%, matching the previously reported pace.
Core personal consumption expenditures rose 2.1% quarter on quarter, or slightly below the 2.2% increase previously reported. And in a separate report later Wednesday morning, core PCE was shown to have risen just 1.6% in October over last year, below the 1.7% consensus and print from the month prior. Core PCE excludes more volatile food and energy prices and serves as the Federal Reserve’s preferred measure of underlying price changes.
Durable goods orders unexpectedly rose by 0.6% in October, the Census Bureau reported Wednesday in its preliminary monthly report. This topped consensus expectations for a 0.9% decline in orders for durable goods, or those intended to last at least three years. In September, durable goods orders were downwardly revised to see a 1.4% drop, steeper than the 1.2% decline reported earlier.
Meanwhile, closely monitored non-defense capital goods orders excluding aircraft increased 1.2% in October after an upwardly revised 0.5% decline in September. This was also a surprise increase, versus a 0.2% decrease expected for the month. This core measure of capital goods serves as a proxy for future business investment.
Initial jobless claims declined more than expected in November after two consecutive weeks of increases, smoothing out the noise to point to a still-tight labor market. New unemployment claims totaled a seasonally adjusted 213,000 for the week ended November 23, below the 221,000 expected. The prior week’s new unemployment claims were upwardly revised by 1,000 to 228,000.
Continuing unemployment claims also dropped, falling to 1.64 million for the week ended November 16 from the upwardly revised 1.697 million the week prior. This was well below expectations for 1.691 million.
Pending home sales unexpectedly fell in October for the first time in three months, the National Association of Realtors said Wednesday. Pending home sales declined by 1.7%, versus the 0.2% gain expected and 1.4% increase from September. While the Northeast saw a small rise in pending home sales last month, the other three major regions of the South, West and Midwest saw declines. Despite the lower than expected print, NAR’s chief economist Lawrence Yun said the “overall economic landscape remains favorable” in the housing market, as mortgage rates remain low.
““There is no shortage of buyers seeking homes, but a lack of available units continues to drag down the nation’s housing market and overall economy,” Yun added. “Clearly, home builders must step in and construct more housing.”
STOCKS: Deere, Dell post disappointing guidance
Heavy equipment-maker Deere (DE) posted stronger than expected fiscal fourth quarter results, but a gloomy forecast for 2020 highlighted farmers’ uneasiness to make new investments as the trade war remains unresolved.
Fourth-quarter adjusted earnings per share (EPS) of $2.14 on revenue of $8.7 billion topped the Street’s expectations for $2.13 a share on sales of $8.4 billion. But for fiscal 2020, Deere said it expects net income of between $2.7 billion to $3.1 billion, lower than the $3.46 billion consensus. And agriculture and turf equipment sales are expected to slump by between 5-10% next year.
“Lingering trade tensions coupled with a year of difficult growing and harvesting conditions have caused many farmers to become cautious about making major investments in new equipment,” Deere CEO John May said in a statement.
“At the same time, general economic conditions have remained favorable,” he added. “This has supported demand for smaller equipment and led to solid results for Deere’s construction and forestry business which had a record year for sales and operating profit.”
The cloud-based software company delivered a fourth-quarter adjusted loss per share of a penny, matching expectations. Revenue of $177.2 million grew 14% over last year and beat expectations for $174.7 million, and billings growth of 10% matched last year’s pace. Box said it expects sales of as much as $694.7 million for the full fiscal year, raising this from the as much as $692 million seen previously.
Dell (DELL) posted mixed third-quarter results and disappointing sales guidance for next year, with the computer tech company pointing to weak server demand and shortages of Intel (INTC) chips used in PCs for the tepid outlook.
In the third quarter, adjusted EPS of $1.75 was ahead of expectations for $1.59, while revenue of $22.84 billion was light against the $23.03 billion anticipated. Client Solutions Group sales – the largest contributor to overall revenue – increased 5% over last year. For next year, Dell sees 2020 sales of between $91.8-92.5 billion, lower than the $93-94 billion range previously provided.
