U.S. stock markets witnessed a choppy session on Thursday. In the initial hours of trading all three indexes entered the negative territory. However, indexes recovered most of their losses over the rest of the trading session. Finally, S&P 500 and Nasdaq Composite ended in the red while the Dow managed to gain marginally. Uncertainty about the Fed’s future plans, concerns regarding an impending trade war and weak earnings results fueled market volatility.
The Dow Jones Industrial Average (DJI) closed at 23,930.15, increased by a marginal 5.17 points. However, the S&P 500 Index (INX) decreased 0.2% to close at 2,629.73. The Nasdaq Composite Index (IXIC) closed at 7,088.15, also decreasing 0.2%. A total of 7.56 billion shares were traded on Thursday, higher than the last 20-session average of 6.61 billion shares. Decliners outnumbered advancers on the NYSE by 1.36 -to-1 ratio. On the Nasdaq, decliners had an edge over advancers by 1.80 to -1 ratio.
The CBOE VIX decreased 0.4% and closed at 15.90, after touching 18.53 (up nearly 16%) in the early hours of trading. This was the biggest one day jump of Wall Street’s fear index since April 6.
How Did the Benchmarks Perform?
The Dow gained 5.17 points by the end of trading reversing he spate of losses suffered over the last four successive sessions. However, the blue-chip index was down by 393 points in the early hours of trading and fell below its 200-day moving average at 23,750.30. Finally, the index recovered its losses and closed above this psychological barrier. Notably, 19 of the 30-stocks in the index closing in the red while 11 traded in the green.
The S&P 500 decreased 0.2% led by 0.9% decline of both the Healthcare Select Sector SPDR (XLV) and the Financials Select Sector SPDR (XLF). Notably, 7 out of 10 sectors of the benchmark index ended in negative territory. In the initial hours of trading the benchmark index was down as much as 1.6% breaking below its 200-day moving average. The index recovered most of its lost ground but still closed in the red.
The Nasdaq Composite lost 0.2% after dropping more than 1% during the trading session. Strong performance by large-cap tech stocks helped the tech-laden index to make up for most of its losses, in the final hour of trading.
Uncertainty Regarding Fed’s Policy
As inflation touches the Fed’s target level of 2%, the market is expecting any of the two strategies from the central bank. The central bank may raise the magnitude of benchmark interest rate or it may increase the number of interest rate hikes in 2018. It may also speed up the winding down of its bond purchases further.
However, the central bank did not provide any clear-cut indication about its future monetary policy after its recently concluded meeting. Industry watchers and economists are divided about the Fed’s future moves regarding the pace of rate increases. Higher interest rate will raise cost of funds for both corporate and individual and will strengthen the dollar affecting U.S exports.
Trade War Fear Looms Large
Trade war fear remain heightened even though a high-level delegation led by the U.S. Treasury Secretary Steven Mnuchin will meet Chinese counterparts this week to negotiate trade related disputes.
Meanwhile, President Trump is contemplating issuing an executive order to restrict select Chinese telecommunications equipment makers from selling products in the United States.
Weak Earnings Results
On Thursday, several large companies posted weak earnings results in an otherwise extremely strong first-quarter earnings session.
Shares of American International Group Inc. (AIG – Free Report) plummeted 5.3% after it reported first-quarter 2018 operating earnings of $1.04 per share that missed the Zacks Consensus Estimate of $1.24. (Read More)
Shares of Cardinal Health Inc. (CAH – Free Report) plunged 21.4% after it reported third-quarter fiscal 2018 adjusted earnings of $1.39 per share, which missed the Zacks Consensus Estimate of $1.51. (Read More)
Shares of Tesla Inc. (TSLA – Free Report) dropped 5.6% after Chief Executive Officer Elon Musk attacked the media during its earnings conference call and cut-off analysts asking about the company’s profit potential and margins. Tesla incurred an adjusted loss of $3.35 per share in first-quarter 2018, narrower than the Zacks Consensus Estimate of the loss of $3.37. (Read More)
The Institute of Supply Management (ISM) reported that the U.S. non-manufacturing sector declined to 56.8 in April from the March reading of 58.8. The consensus estimate for April reading was 58.1. However, the service sector maintained its 99-month streak of overall expansion despite decline in April. A reading above 50 means the service is expanding.
The Department of Labor reported that U.S. worker productivity increased at a 0.7% annualized rate in the first quarter of 2018. Although the reading was lower than the consensus estimate of 0.9%, it was better than the 0.3% reading of the fourth quarter of 2017.
Meanwhile, jobless claims for unemployment benefits rose 2,000 to a seasonally adjusted 211,000 for the week ended April 28 falling to its lowest level since 1973. This was better than the consensus estimate of 224,000.
The Department of Labor also reported that the unit labor costs increased 2.7% in the first quarter of 2018. Although this figure is better than the consensus estimate of 3% it is well above the fourth quarter 2017 reading of 2.1%.
U.S. factory orders for the month of March increased 1.6% beating the consensus estimate of 1.3%. The reading for February was revised to an increase of 1.6% from the prior reading of 1.2%.
The Commerce Department reported that the trade deficit dropped 15.2% to $49 billion in March, the lowest level since September 2017. March data reversed the six straight monthly increases in the trade deficit. However, the figure was below the consensus estimate of a decline of $51.5 billion.
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