The S&P 500 (^GSPC) slipped 0.04%, or about 1 point, as of market close, with the financial sector underperforming. The Dow (^DJI) fell 0.22%, or 53.02 points, after adding more than 350 points earlier in the trading day and later erasing gains. The Nasdaq (^IXIC) rose 0.16%, or 11.31 points.
Stocks were whipsawed Tuesday amid a flurry of headlines relating to trade and government funding. Tuesday afternoon ET, a meeting between President Donald Trump and Democratic congressional leaders descended into an argument over Trump’s proposed U.S.-Mexico border wall. Trump threatened a partial government shutdown if his demands for funding for the wall are not met, saying he would be “proud” to shut the government down over the issue. Funding for several government agencies runs out on December 21.
Earlier during the session, signals of trade talk advances initially sent equities roaring higher. On Tuesday morning Beijing time, China’s Vice Premier Liu He, U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer spoke by phone to discuss a road map for the next stage of trade talks, according to a statement from China’s commerce ministry. The talks point to a willingness for envoys of both sides to continue negotiations even amid concerns that the recent arrest of the CFO of China’s Huawei Technologies over alleged Iran sanctions violations could strain U.S.-China relations.
Trump on Tuesday also teased that “some important announcements” were coming in relation to the China trade talks, without providing further details.
Investors had received a further dose of optimism following reports that China is moving to cut tariffs on U.S.-made cars. Trump said in a Twitter post following his talks with China’s President Xi Jinping at the G20 summit earlier this month that China had agreed to “reduce and remove” the 40% tariff on cars from the U.S. A proposal to slash the tariffs to 15% has been submitted to China’s Cabinet, according to a Bloomberg report published Tuesday. The news sent auto stocks including General Motors (GM), Daimler AG (DAI.DE), Ford (F) and Fiat Chrysler (FCAU) higher.
Some investors have blamed an increasingly uncertain political environment as cause for the recent market volatility.
“How does a CFO plan capital allocation, how does a credit analyst assess risk, how does an investor assess profit margins, and how does a factory employee buy a car or a home when 2019’s economy could dramatically change with the stroke of a tweet?” Richard Bernstein, CEO and CIO of Richard Bernstein Advisors, wrote in a note.
Bernstein does not believe the stock market’s swings have been primarily led by fundamental variables including corporate profits and Federal Reserve policy, both of which have been in line with “very normal late-cycle paths,” he said.
“It is much more likely that market volatility is increasing because household and corporate planning has become nearly impossible in a highly capricious political environment,” he added.
Chris Rupkey, chief financial economist for Mitsubishi UFJ Financial Group, echoed these sentiments.
“From last week’s ‘I am a Tariff Man’ to this week’s ‘I will be the one to shut it down,’ the stock market is swinging crazily in fear of just what the president might tweet or say or do next,” Rupkey wrote in an email. “Continuous change is not good for stocks as it sows the seeds of uncertainty.”
NEWS: Google CEO refutes bias claims during congressional hearing
Google’s (GOOG, GOOGL) top executive Sundar Pichai testified before the U.S. House of Representative’s Judiciary Committee in a more than three-hour-long hearing Tuesday, wherein lawmakers questioned Pichai about the internet giant’s search algorithms, business plans in China and data collection practices.
Throughout the hearing, Pichai emphasized that the company is transparent about how it evaluates search. He refuted claims that an individual employee or group of employees could manipulate search results, even as some lawmakers have railed against the company for carrying an alleged conservative bias. “We build our products in a neutral way,” Pichai said.
Pichai also stressed that Google has “no plans to launch a search product in China.” Earlier this year, Google executives came under fire following reports that the company was working on creating a censored search engine for Chinese internet users. Pichai admitted during the congressional hearing that about 100 employees had at one point been working on the China project, and that the project had been carried out “for a while.”
On user data, Pichai said that users must opt in for certain data-tracking features, but sidestepped a question about whether he believed Android device users fully recognized the terms of use of the data collection. Earlier this year, Google was lambasted in the wake of an Associated Press investigation revealing that pausing “Location History” on a Google account did not, in fact, end storage of time-stamped location information.
Pichai’s testimony comes following a slew of public hitches for the internet giant. Most recently, the company said on Monday that it would be shuttering Google+ after discovering a second data leak allowing developers to access private information on about 52.5 million users.
STOCKS: CBS holds first annual shareholder meeting since ousting of Moonves
CBS (CBS)held its annual shareholder meeting in New York City on Tuesday, after rescheduling the event twice. This marks the first shareholder meeting since former Chairman and CEO Les Moonves was ousted following an investigation into sexual misconduct during his tenure. The company most recently reported quarterly results at the beginning of November and beat expectations on the top and bottom lines despite the scandals rocking the media company. Shares of CBS are down about 15% for the year-to-date through Monday.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., December 10, 2018. REUTERS/Brendan McDermid
Shares of DSW (DSW) jumped after the company reported strong quarterly results and raised its full-year guidance. Net income came to $39.3 million, or 48 cents per share, for the quarter, with adjusted earnings of 70 cents beating expectations by 19 cents. Revenue rose to $833 million, beating expectations of $791.3 million, according to Bloomberg data. The discount shoe retailer said it expects revenue to grow 12% to 14% for the full-year, versus previous guidance of a 6% to 9% advance. Shares of DSW increased 8.14% to $25.01 per share as of market close.
Stitch Fix (SFIX) exceeded Wall Street’s expectations for quarterly earnings and sales in results delivered after-the-bell on Monday, but disappointing results on active client growth sent shares tumbling. Net income came in at $10.7 million, or 10 cents per share, whereas consensus estimates were for earnings of 3 cents per share. The company also grew sales to $366 million versus expectations of $358 million. However, the personal styling service company fell slightly short of expectations for new active clients, which grew 22% in the quarter to 2.9 million, below estimates of 2.95 million active users expected. Shares of Stitch Fix fell 21% to $20.54 per share as of market close.
ECONOMY: November’s core Producer Price Index exceeds expectations
The Producer Price Index for final demand increased at a 0.1% pace of increase in November from 0.6% in October, the Bureau of Labor Statistics said Tuesday. Consensus estimates were for PPI to remain unchanged in November, according to Bloomberg data. Year-over-year, PPI rose 2.5%, in-line with estimates.
Core PPI, which excludes food and energy categories, grew at a pace of 0.3%, exceeding consensus expectations of 0.1%. Year-over-year, core PPI grew at a rate of 2.7%, beating estimates by 20 basis points.
“In short, the headline data were held down by oil-related components, but the core data were a bit stronger than expected,” Jim O’Sullivan, chief U.S. economist for High Frequency Economics, wrote in a note. “The core data continue to show accelerating trends.”
The NFIB small business optimism index fell to 104.8 in November from 107.4 in October, falling below consensus estimates of 107. This marks the third consecutive month of declines in small business optimism. The tight labor market was among the reasons cited for the decrease, with about 25% of business owners surveyed saying that finding qualified workers was the most important business problem.
Stock market volatility was also partially behind the declines in the index, given that two of the index’s 10 components – economic expectations and sales expectations – are sensitive to stock market movements, Ian Shepherdson of Pantheon Macroeconomics noted.
“This survey looks like a softening, but this is not an interest rate-driven end-of-the-cycle rollover; it has been triggered by the drop in stock prices, which in large part reflects the trade war with China,” Shepherdson wrote in a note. “If that problem is solved, as we expect, the stock market will rebound, dragging the NFIB back up.”
