Stocks fell Wednesday amid a new reading that showed the U.S. trade deficit had ballooned to the highest level in a decade at the end of 2018.
The S&P 500 (^GSPC) declined 0.65%, or 18.2 points, as of market close, marking the sixth of past seven days that the index closed lower. The Health Care and Energy sectors led declines as global oil prices slid following a U.S. Energy Information Administration report pointing to a sharp increase in domestic crude stockpiles.
The Dow (^DJI) edged down 0.52%, or 133.17 points, while the Nasdaq (^IXIC) fell 0.93%, or 70.44 points.
The start-of-the-year rally for U.S. equities has lost some steam in the absence of new updates for U.S.-China trade talks and as market participants recalibrate to the Federal Reserve’s more dovish communications. The release of new corporate earnings results has also begun to peter out for the quarter.
Investors Wednesday turned their attention to the release of the Federal Reserve’s Beige Book, which comprised anecdotes on current economic conditions from each regional Federal Reserve Bank ahead of the Federal Open Market Committee’s (FOMC) March meeting.
The report noted that economic activity continued to expand in late January through February, with 10 of 12 districts reporting slight-to-moderate growth. A few districts reported upward price pressure from tariffs, and about half of the districts said that the partial government shutdown “had led to slower economic activity in some sectors including retail, auto sales, tourism, real estate, restaurants, manufacturing and staffing services.” Employment increased in most districts, the Beige Book continued, and labor markets “remained tight for all skill levels.”
Equities, which had been down for much of Wednesday’s session, were little changed following the 2 p.m. release of the Beige Book. Treasury yields were also little changed, with the 10-year yield lower by 3.2 basis points to 2.69% as of 4:13 p.m. ET.
As of market close Tuesday, the S&P 500 had risen 10.6% for the year-to-date. Updates out of Washington have been strong catalysts for both equity markets and the economy so far this year, some analysts said.
“What drove the market recovery—and, increasingly, a recovery in the economic data—was the agreement at the end of January to end the government shutdown. With that uncertainty removed, consumer and business confidence started to recover,” Brad McMillan, chief investment officer for Commonwealth Financial Network, said in a note.
“Looking to March, much will depend on whether that confidence continues to be justified. The jobs report is expected to be strong again, which should help, and business confidence has already come in fairly strong,” he said.
The question, however, will be whether politics become cause for concern again, McMillan said.
“The only real wild card—and what I will be watching closely—will be the debt- ceiling negotiations,” McMillan said. “These negotiations could hit both politics and economics, and the situation is politically complicated enough to drive another confrontation. Everything else looks constructive, but this is the one issue that could change things.”
Treasury Secretary Steven Mnuchin on Monday asked that congressional leaders raise the federal debt limit “as soon as possible” to prevent a default, which came as the Treasury Department began a “debt issuance suspension period” to avoid missing a debt payment. Treasury Department data last month showed that the national debt had swelled to a record high of more than $22 trillion.
ECONOMY
The U.S. trade deficit widened more-than-expected to $59.8 billion in December, the highest level since October 2008, according to a Census Bureau report Wednesday. Imports rose 2.1% in December to $264.89 billion, while exports fell 1.9% to $205.12 billion. November’s trade deficit was upwardly revised to $50.3 billion, from $49.3 billion previously. For the full year, the U.S. trade gap grew to $621 billion.
The widening trade deficit at the end of the year “confirms that net trade was a drag on GDP growth in fourth quarter,” Andrew Hunter, senior economist for Capital Economics, wrote in a note Wednesday. “We expect that drag to intensify in the first quarter.”
Mortgage application volume declined 2.5% on a seasonally adjusted basis for the week ending March 1, according to the Mortgage Bankers Association’s weekly report. Applications for the week prior had risen by 5.3%. Slightly higher mortgage rates last week drove a decrease in application volume, and average loan size rose to a record high as the average size of conventional loans increased. “This suggests that move-up and higher-end buyers have so far become a greater share of this spring market,” Mike Fratantoni, chief economist for the MBA, said in a statement.
Private payrolls fell in February, according to results Wednesday from the monthly ADP/Moody’s National Employment report. Private companies added 183,000 new positions for the month, falling short of Bloomberg estimates of 190,000. January’s figures were upwardly revised to 300,000 from 213,000.
STOCKS
Abercrombie & Fitch (ANF) topped consensus expectations for earnings and same-store sales growth for the fiscal fourth quarter, sending shares higher by more than 19% Wednesday morning ET. The company delivered adjusted earnings of $1.35 per share in the fourth quarter, ahead of estimates of $1.14 per share, according to Bloomberg data. Comparable same-store sales grew 3%, ahead of estimates of 1.3%.
The teen clothing company said it sees first quarter comparable sales in the range of flat to up 2%, and gross profit for the full-year 2019 to be up slightly from the 60.2% rate seen in 2018. Net sales for 2019 are expected to be between 2% and 4% higher than the $3.59 billion seen in fiscal 2018.
Abercrombie said it plans to add or remodel up to 85 locations this year. It also announced it will close up to 40 current locations, primarily in the U.S.
Dollar Tree (DLTR) exceeded Wall Street’s expectations for fourth-quarter comp sales, with growth of 2.4% for the quarter beating the 1.6% seen by analysts. The deal store, which reported earnings Wednesday morning, posted a fourth-quarter loss of $2.31 billion, or $9.66 per share, versus a $1.04 billion profit, or $4.37 per share in the year-ago period due to a more than $2.7 billion goodwill impairment charge relating to its Family Dollar business. Dollar Tree said it will close as many as 390 Family Dollar Stores this year.
