Stocks were lower at the end of a choppy session Friday amid a slew of new updates to the Trump administration’s trade policies.
The S&P 500 (^GSPC) was down 0.58%, or 16.8 points, as of market close, with the materials sector leading declines. The Dow (^DJI) edged down 0.38%, or 98.68 points, while the Nasdaq (^IXIC) declined 1.04%, or 81.76 points.
Early Friday, the White House announced that the Trump administration was delaying an imposition of tariffs on imported cars and auto parts by six months. The outcome was widely expected after reports that Trump was set to unveil the delay were first brought to light earlier this week.
Later Friday afternoon, Trump said that he had reached a deal to remove steel and aluminum tariffs on Canada and Mexico.
“The agreement provides for aggressive monitoring and a mechanism to prevent surges in imports of steel and aluminum,” the office of the U.S. Trade Representative said in a statement following Trump’s remarks. “If surges in imports of specific steel and aluminum products occur, the United States may re-impose Section 232 tariffs on those products.”
Earlier during the session, the Dow was off by as many as 205 points as investors digested further comments from China signaling a standstill in near-term progress toward a trade deal.
China’s Ministry of Commerce spokesman said Thursday that he did not have information about U.S. officials returning to Beijing for further trade talks, and suggested several of China’s major concerns around tariff removal and purchasing targets would need to be addressed before an agreement could be reached, according to Bloomberg News.
Delegations from the U.S. and China last met in Washington, D.C, last week in a round of discussions that began before the new 25% rate of tariffs on $200 billion worth of Chinese goods went into effect May 10.
Separately, China’s government said it is studying the impact of higher U.S. tariffs on the Chinese economy and intends to implement “responsive measures when necessary,” Meng Wei, National Development and Reform Commission spokeswoman said, according to Bloomberg News. These could include stimulus measures proportional to the impact of the raised tariffs. Earlier this week, China’s economy showed signs of softening, as April retail sales dropped to a 16-year low and industrial output slowed more than expected.
Meanwhile, a recent crackdown on one of China’s top technology companies has further driven a wedge between the two countries. Trump signed an executive order earlier this week forbidding U.S. companies from using telecommunication gear from foreign entities deemed to pose a national security risk. Shortly thereafter, the Commerce Department added China’s Huawei to a list of companies considered to undermine American interests.
While the move is speculated to have been in part an effort to stem the no. 2 smartphone vendors’ global expansion, Huawei asserted the move will not cripple its ambitions. Huawei’s Chief Security Officer Andy Purdy said the move would do more damage to U.S. suppliers than to Huawei.
On Thursday, semiconductor stocks – many of which serve as suppliers to Huawei – were down across the board. The iShares PHLX SOX semiconductor ETF fell more than 1.5% as of market close Thursday. Qorvo (QRVO) shares – which has an estimated 10.78% revenue exposure to Huawei, according to Bloomberg supply chain data – fell more than 7%, and extended losses during early trading Friday.
Amid the resurgence of trade tensions, markets have begun to price in a higher probability that the Federal Reserve will cut rates to help encourage spending and prop up the economy. CME Group’s closely watched Fed Funds futures tool showed markets were pricing in a 74.7% probability of at least one rate cut by year-end, as of Friday afternoon.
Some analysts contended the notion that trade concerns would be at the heart of any potential interest rate cut, however.
“We’ve long expected the Fed to reverse course with 75 (basis points) of cut rates by mid-2020, and on that basis market expectations don’t look far off,” Andrew Hunter, senior economist for Capital Economics, wrote in a note Friday. “But Fed officials will be paying far more attention to domestic economic conditions than trade policy.”
ECONOMY
The University of Michigan’s consumer sentiment index tracked an advance reading of 102.4 in May, marking a 15-year high. This was ahead of expectations for a reading of 97.2, the same level as from April. All of the gain in May’s reading came from a jump in the Expectations Index, which jumped to 96, or the highest level since 2004, said Surveys of Consumers chief economist Richard Curtin.
However, “the gains were recorded mostly before the trade negotiations with China collapsed and China responded with their own tariffs,” Curtin added. “Even apart from the direct impact of tariffs on prices, rising tariffs could cause a more general loss of confidence which could further diminish the pace of consumer spending.”
The Conference Board Leading Economic Index (LEI) increased 0.2% in April, matching consensus expectations and rising for a third consecutive month. Gains in the index, which looks to capture the direction of future economic activity, fell slightly from a downwardly revised 0.3% pace in March.
“Stock prices, financial conditions, and consumers’ outlook on the economy buoyed the U.S. LEI, although the manufacturing sector showed continuing weakness,” Ataman Ozyildirim, director of economic research at The Conference Board, said in a statement. The Conference Board expects U.S. economic growth to “moderate” toward 2% by the end of 2019.
STOCKS
Deere & Company (DE) missed expectations on the bottom-line for its fiscal second quarter and cut its net income guidance for the year, sending shares lower in early trading. The world’s largest tractor maker cited uncertainty around demand for its products amid an ongoing trade war as cause for its dimmer outlook.
“Ongoing concerns about export-market access, near-term demand for commodities such as soybeans, and a delayed planting season in much of North America are causing farmers to become much more cautious about making major purchases,” CEO Sam Allen said in a statement Friday.
Deere & Company posted net sales of $10.27 billion in its second quarter, above the $10.18 billion expected. Adjusted EPS of $3.52 missed expectations by 10 cents. The company’s guidance of $3.3 billion for full-year sales was cut from $3.6 billion seen previously, and below the average $3.56 billion consensus analysts were expecting.
Nvidia (NVDA) beat consensus expectations on the top- and bottom-lines in first quarter results delivered after market close Thursday. The chipmaker’s guidance for the second quarter of about $2.55 billion was roughly in-line with expectations, but implies a year-over-year decline of 18%. Nvidia’s management warned that its key gaming business segment will fall 14% during the 2020 fiscal year due in part to increased competition weighing on prices. However, its gaming segment topped sales expectations in the first quarter, with $1.06 billion in revenue versus $933.5 million expected. Nvidia’s management also warned the slowdown in data center spending that plagued the company last quarter will “likely persist in the second quarter.”
Pinterest (PINS) shares slumped more than 17% in early trading after the company posted disappointing sales guidance for the full year. The digital scrapbooking company sees revenue of between $1.06 billion to $1.08 billion, lower than Wall Street’s $1.09 billion expected. First-quarter sales of $201.9 million topped estimates calling for $200.8 million. However, excluding certain items, Pinterest’s loss per share was 32 cents, wider than the about 10-cent loss Wall Street had been expecting. Monthly active users totaled 291 million, in-line with guidance the company delivered earlier this year.
