U.S. stocks fell as new economic data pointed to weakness in the manufacturing sector and softening labor market trends. Earlier reports of progress toward tangible commitments for a trade deal between the U.S. and China failed to provide a lasting boost to stocks.
The S&P 500 (^GSPC) slipped 0.35%, or 9.82 points, as of market close, marking just the fourth down day for the index in February. The Dow (^DJI) declined 0.4%, or 103.81 points, while the Nasdaq (^IXIC) fell 0.39%, or 29.36 points.
Thursday morning, the Census Bureau released data showing that durable goods orders in the U.S. rose less-than-expected in December. Core capital goods orders – a closely watched, forward-looking measure of business spending that captures non-defense capital goods orders excluding aircrafts – also posted a surprise decline for the month.
The disappointing data led at least one firm to trim its outlook for first quarter gross domestic product growth.
“This morning’s durable goods report adds to our sense of downside risk to growth early in the year, and we are nudging lower our early estimate of real annualized GDP growth in Q1 from 1.75% to 1.5%,” JPMorgan economist Michael Feroli wrote in a note Thursday.
The Federal Reserve Bank of Atlanta on Thursday downwardly revised its expectations for fourth-quarter 2018 GDP growth to 1.4%, from the 1.5% increase it saw February 14. The Atlanta Fed also cited the weak durable goods data as cause for its lower expectations.
Earlier, equity futures got a boost overnight following multiple reports that the U.S. and China had outlined memorandums of understanding to underscore an eventual trade deal. These encompassed issues of forced technology transfer, intellectual property rights, services, currency, agriculture and non-tariff trade barriers, according to a Reuters report citing people familiar with the discussions. Each of these points has been brought up anecdotally as key points of concern over the course of the past year, but signs that these are now closer to official memoranda helped boost optimism for a timely trade deal.
President Donald Trump suggested earlier this week that he would consider extending a March 1 deadline to complete negotiations, after which the rate of tariffs on billions of dollars on Chinese goods was set to rise. Delegations from the U.S. and China met in Washington, D.C. this week for trade discussions.
Although positive trade news has been a tailwind in the first part of this year, trade tensions have created a net drag on the market since January 2018, said Neil Dutta, head of economics at Renaissance Macroeconomics. The S&P 500 would have been an estimated 11% higher “if not for all the negative trade news over the last 14 months,” Dutta wrote in a note published Wednesday.
“The market has been rallying of late on the prospect of a favorable resolution to the U.S. & China trade dispute. With the market off its lows, a popular view is that the equity market has priced in all the good news already,” Dutta said. “We are skeptical; the equity market has only partially retraced the losses associated with trade tensions.”
Trade tensions between the U.S. and China have also residually impacted other major global economies. New data published Thursday showed that Germany’s manufacturing purchasing manager’s index fell to 47.6 in February, a 74-month low, pointing to a further contraction in a key sector of the eurozone’s biggest economy.
“In terms of the factors behind the slowdown in manufacturing order books, many of the usual suspects – the uncertainty relating to U.S.-China trade tensions and weakness in the autos industry – were highlighted, although there were also reports of growing competitive pressures within Europe,” Phil Smith, principal economist for IHS Markit, said in a statement.
New durable goods orders in the U.S. rose 1.2% in December versus consensus estimates of 1%, according to data released Thursday from the Census Bureau. Transportation equipment orders including vehicles, vehicle parts and commercial aircrafts parts helped drive advances, with new orders growing just 0.1% month-over-month when netting out transportation. This was the second straight month of increases in durable goods orders, following a 1% increase in November.
Non-defense capital goods orders, excluding aircrafts, posted an unexpected decline in December, falling 0.7% versus consensus estimates of a 0.2% increase. This follows a downwardly revised 1% decline in November. Non-defense capital goods shipments, excluding aircrafts, rose 0.5%, versus expectations for no change.
The headline index from the Philadelphia Fed’s Manufacturing Business Outlook Survey registered a surprise decline of 4.1 in February, below expectations for a reading of positive 14, as both new orders and shipments indices dropped. This was the index’s first negative reading since May 2016. Firms included in the regional Fed’s survey, however, did report increases in employment for the month, and an index measuring future conditions showed firms were generally optimistic abut the next six months.
The U.S. manufacturing purchasing managers’ index released by IHS Markit registered a decline to 53.7 in February from 54.9 in January, coming below expectations of a reading of 54.8. While the reading above the key level of 50 still indicates expansion in the sector, this was the slowest improvement in business conditions since September 2017, IHS Markit reported.
The services PMI, however, was stronger-than-expected, coming in at 56.2 for February versus 54.3 expected. This was the strongest rise in activity since June 2018. The composite PMI, based on survey data from both the manufacturing and services PMI, rose to 55.8 in February, the strongest pace of output in the private sector since June 2018.
New jobless claims fell more-than-expected for the week ending February 16, according to the Department of Labor’s weekly release. The number of initial claims for unemployment fell to 216,000 for the week, below expectations of 228,000 and the prior week’s 239,000. The Labor Department noted, however, that claims for California, Virginia, Hawaii and Puerto Rico were estimated last week due to the Presidents Day holiday, which could have affected the apparent drop in claims. And despite this week’s decline in initial claims, the four-week moving average is now higher at 235,750, an increase of 4,000 from the week prior.
The latest data for continuing jobless claims also came in lower-than-expected, with 1.725 million continuing claims filed for the week ending February 9, versus an upwardly revised 1.780 million the week prior and 1.743 million expected.
Domino’s Pizza (DPZ) posted softer-than-expected sales growth for the fourth quarter, disappointing investors accustomed to the pizza chain’s typical outperformance of consensus estimates. Same-store sales in the U.S. grew 5.6% in the quarter, 160 basis points below the pace of growth estimated by consensus analysts, while international same-store sales growth of 2.4% came in 180 basis points below expectations. Domino’s also missed on the top and bottom lines for the quarter, delivering earnings of $2.62 per share for the quarter, or 7 cents short of expectations, and revenue of $1.08 billion versus consensus estimates of $1.10 billion.
Nike (NKE) shares declined after Duke University basketball player Zion Williamson was injured Wednesday when his Nike shoe fell apart during a game. Nike said in a statement that “While this is an isolated occurrence, we are working to identify the issue.” Shares of peer athletic apparel companies including Puma (PUM.DE) and Under Armour (UA) rose.
Norwegian Cruise Line Holdings (NCLH) delivered earnings for the fourth quarter and an outlook for the full-year 2019 that topped Wall Street’s expectations. Fourth-quarter adjusted earnings came in at 70 cents per share, or 12 cents ahead of estimates, while the midpoint of Norwegian’s full-year forecasted earnings range of $5.20 to $5.30 per share was ahead of estimates of consensus’ $5.15. CEO Frank Del Rio said in a statement that “strong global demand for our portfolio of brands, the successful, record-breaking introduction of Norwegian Bliss and the flawless execution of our demand creation strategies drove our fifth consecutive year of double-digit earnings per share growth.”
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
Read more from Emily: