U.S. stocks closed higher as investors digested data from major Asian economies pointing to deteriorating manufacturing sector conditions, reigniting concerns of a global growth slowdown and spurring a choppy trading session Wednesday.
The S&P 500 (^GSPC) edged higher by 0.12%, or 3.18 points, as of market close, reversing losses of more than 1.5% earlier in the session. The Energy and Communication sectors led advances, while weakness in the Real Estate and Utilities sectors weighed on the index. The Dow (^DJI) rose 0.08%, or 18.78 points, after having been off by nearly 400 points at the intraday lows. The Nasdaq (^IXIC) advanced 0.46%, or 30.66 points.
Wednesday’s session is the first equity trading day of the 2019 calendar year, which comes in the wake of the worst year for stocks since 2008. In 2018, the S&P 500 was down 6.2%, the Dow was lower by 5.6% and the Nasdaq was down 3.9%. The fourth quarter was particularly volatile for equities as uncertainty about U.S.-China trade relations, global growth and Federal Reserve monetary policy weighed on investors. In December, the S&P 500 was up or down at least 1% nine times, versus eight moves of that size in the entirety of 2017.
Crude oil prices also rebounded after declining about 25% in 2018 amid concerns of weakening demand and oversupply. West Texas intermediate futures (CL=F) rose 2.5% to settle at $46.54 on Wednesday, posting a third consecutive day of gains.
Recent results from the Caixin/Markit Manufacturing Purchasing Managers’ Index pointing to weakening factory conditions in China contributed to a decline in global equities Wednesday morning ET, fueling worries of an economic deceleration in Asia’s export-heavy countries. The private survey showed a reading of 49.7 in December from 50.2 in November. This was the first time since May 2017 that the reading fell below 50, indicating contraction in manufacturing activity.
“In general, China’s manufacturing sector faced weakening domestic demand and subdued external demand in December. Companies had a stronger intention to destock and prices of industrial products were declining, which could further drag on production,” Zhengsheng Zhong, director of macroeconomic analysis at Caixin subsidiary CEBM group, said in a statement. “It is looking increasingly likely that the Chinese economy may come under greater downward pressure.”
Despite a continued strong economy and low unemployment, 2018 proved to be a volatile year in the financial markets with numerous record breaking trading sessions. The Dow finished up over 250 points on the final day of 2018. (Photo by Spencer Platt/Getty Images)
The results reinforce a decline indicated in data released Monday from China’s government-issued PMI, which registered a drop to 49.4 in December from 50.2 in November.
The slump in manufacturing activity, however, was not exclusive to China for the month of December. Recent PMI results largely tumbled across Asian countries, with Taiwan’s Nikkei and IHS Markit manufacturing PMI falling to a three-year low of 47.7 in December from 48.4 in November, and Malaysia’s PMI declining to an all-time low of 46.8 from 48.2. In South Korea, manufacturing PMI rose to 49.8 from 48.6 in November, but languished in contractionary territory for the second consecutive month.
Stocks in Asia headed a swathe of red among global equities, with the Hang Seng Index (^HSI) declining 2.77% and the Shanghai Composite (000001.SS) tumbling 1.15% on Wednesday.
ECONOMY: U.S. Markit Manufacturing PMI slips to 15-month low in December
Manufacturing PMI also retreated in the U.S. in December, with IHS Markit’s headline indexedging down to a 15-month low of 53.8 from 53.9 in November. Consensus expectations had been for the index to have remained unchanged for the month. The firm also noted that business confidence among manufacturers declined again in December, due in part to the weakest overall rise in new orders growth since September 2017.
“Some of the weakness is due to capacity constraints, with producers again reporting widespread difficulties in finding suitable staff and sourcing sufficient quantities of inputs. However, the survey also revealed signs of slower demand growth from customers, as well as rising concerns over the impact of tariffs,” Chris Williamson, chief bureau economist at IHS Markit said in a statement. “Just over two-thirds of manufacturers reporting higher costs attributed the rise in prices to tariffs.”
However, with a reading over the crucial level of 50, the latest headline result still points to expansion in the U.S. manufacturing sector.
The global manufacturing sector registered a weaker performance at the end of 2018, according to a release Wednesday from JPMorgan and IHS Markit. The global manufacturing PMI declined to a 15-month low of 51.5 in December from 52 in November, and was dragged down by decelerating orders growth, declining new exports business and a slowing global pace of job creation. The average headline PMI reading in the fourth quarter of 51.8 was the lowest since the third quarter of 2016.
“The December PMI surveys signaled that the global manufacturing sector ended 2018 on a subdued footing. Output growth remained stubbornly low, rates of increase in new orders and employment slowed and international trade flows deteriorated. The outlook also remains relatively lackluster, as business confidence dropped to its lowest level in the series history.”
STOCKS: Tesla shares tumble after missing Model 3 delivery estimates
Tesla (TSLA) completed fewer-than-expected deliveries for its crucial Model 3 vehicles in the fourth quarter, with just 63,150 deliveries fulfilled versus the 64,900 anticipated by analysts. The electric car-maker is also reducing the prices of Model S, Model X and Model 3 vehicles in the U.S. by $2,000 as a response to the dropping federal tax credit on electric vehicles. The tax credit is getting sliced to $3,750 from $7,500 for buyers purchasing EVs in January through June 2019, and to $1,875 for purchases between July and December 2019. Shares of Tesla fell 6.81% to $310.12 each as of 4:05 p.m. ET.
Activision Blizzard (ATVI) said on Monday that it plans to terminate employment for CFO Stephen Neumann, who has been placed on a paid leave of absence. The video gaming company, which owns titles including Call of Duty and Crash Bandicoot, said in a filing that the cause for termination is unrelated to financial reporting or disclosure controls and procedures. Reuters reported that Netflix (NFLX) had poached Neumann to be its CFO, with a start date expected in early 2019. Shares of Activision Blizzard reversed losses and rose 0.99% to $47.03 each, while shares of Netflix were unchanged at $267.66 each.
Wells Fargo (WFC) had its stock upgraded to Sector Perform from Underperform by RBC Capital Markets analyst Gerard Cassidy, who cited valuation as a reason for the upgrade. Shares of Wells Fargo declined 25% in 2018 as fall-out from a cascade of corporate scandals continued to drag down share prices. However, Cassidy lowered his price target on the stock to $48 from $50, which represents about 4% upside from Monday’s close. Shares of Wells Fargo rose 1.8% to $46.91 each as of market close.
