The three main U.S. equity benchmarks on Thursday finished lower as selling in technology shares offset an advance in the energy sector. However, a popular index of small-capitalization stocks closed at a record for the second straight day, underlining the resilience of that segment of the market amid worries about trade wars and rising rates.
What did markets do?
The Dow Jones Industrial Average DJIA, -0.22% slipped 54.95 points, or 0.2%, to 24,713.98. The S&P 500 index SPX, -0.09% fell 2.33 points, or less than 0.1%, at 2,720.13, with the energy sector adding 1.3%, representing the best performer among the broad-market benchmark’s 11 sectors. The technology-heavy Nasdaq Composite Index COMP, -0.21% gave up 15.82 points to 7,382.47, a fall of 0.2%.
The S&P 500’s defensive sectors continued to struggle, with utilities down 0.9% and real estate off 0.5%. These industries have declined amid the rise in bond yields, as rising rates make the higher-than-average dividend yields of these companies less attractive to income-seeking investors.
Among the weakest sectors of the day was technology, which fell 0.5% after Cisco reported its results.
Meanwhile, the small-cap benchmark Russell 2000 index RUT, +0.55% rose 0.6% on the day, scoring its second straight closing record at 1,625.29, up 0.6%.
What drove the market?
A second round of U.S.-China trade talks in Washington was in the foreground, kicking off on Thursday. However, President Donald Trump cast some doubt on a positive outcome for the pair of superpowers attempting to resolve their trade differences after he said Beijing had become too “spoiled” and that his expectations for the negotiations were low: “Will that be successful? I tend to doubt it,” he said.
The comments came after Trump last weekend said he would try to help Chinese telecom group ZTE Corp. ZTCOY, -15.37% from going under as it has been targeted by a U.S. ban, but he said in tweets on Wednesday that he wasn’t caving to any demand from China.
Beyond trade disputes, buoyant bond yields remained in focus for market investors, who see them as a signal of climbing borrowing costs and a Federal Reserve intent on tightening monetary policy. The yield on the 10-year Treasury note TMUBMUSD10Y, +0.36% was steady near a seven-year high at 3.1%. A move above 3% has been cited as a psychologically significant level that could make equities appear less attractive.
Meanwhile, Trump said North Korean leader Kim Jong Un would remain in power and see his country flourish economically if he strikes a deal with the U.S. over its nuclear program, perhaps assuaging concerns that tensions were escalating between Pyongyang and Washington after some North Korean officials signaled that Kim was leery of being the next Moammar Gadhafi or Saddam Hussein, the former leaders of Libya and Iraq, respectively, who were both violently ousted from power after giving up nuclear programs.
What were strategists saying?
“Interest rates and bond yields are the elephant in the room for equity markets. As they move higher, equities will become increasingly volatile, especially since valuations are stretched and on the high side,” said Bill Kornitzer, portfolio manager at Buffalo Funds, which has about $7.5 billion in assets.
“At the same time, the backdrop for the economy, both in the U.S. and globally, remains in pretty good shape. This has become something of a stock picker’s market, and right now the momentum is in energy because of tensions in the Middle East and dropping stockpiles.”
What data were in focus?
Initial jobless claims rose by 11,000 to 222,000 in the latest week, the highest level in a month, although they were still near multidecade lows. The Philadelphia Fed manufacturing index came in at 34.4 in May, surging past expectations for a reading of 21.
What stocks were in focus?
1786, +0.47% 1786, +0.47% In the energy sector, Chevron Corp. CVX, +0.79% rose 0.8%, while Occidental Petroleum Corp. OXY, +2.25% was up 1.3% and Marathon Oil Corp. MRO, +2.22% gained 2.2%. The group was supported by a slight rise in the price of crude oil, which is up about 18% this year.
The Energy Select Sector SPDR ETF XLE, +1.51% jumped 1.5%, matching its longest winning streak since July 2006.
Cisco Systems Inc. CSCO, -3.76% ended down 3.8% after services revenue at the networking giant fell short of Wall Street expectations in earnings late Wednesday. The stock, a Dow component, was one of the biggest drags on the overall market.
Walmart Inc. WMT, -1.90% fell 1.9% after the retail giant posted an earnings and sales beat. The discount retailer is also a Dow component.
J.C. Penney Co. Inc. JCP, -12.38% slumped 12.4% after reporting a drop in first-quarter sales and cutting its outlook.
Childrens Place Inc. PLCE, -7.95% fell 8% after earnings took a hit from unseasonably cold weather.
Minerva Neurosciences Inc. NERV, +13.85% rose by about 14% after reporting positive results from a drug trial.
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Take-Two Interactive Software Inc. TTWO, +0.72% edged 0.7% higher after the videogame publisher missed its revenue forecast and provided a weaker-than-expected guidance.
Hasbro Inc. HAS, +0.44% rose 0.4% after it added $500 million to it stock buyback program.
Shares of Williams Companies WMB, +2.34% rose 2.3% after the natural-gas infrastructure company said it would buy the outstanding common shares of Williams Partners LP WPZ, +7.99% in a deal valued at $10.5 billion. Williams Partners shares rose 8%.
Blue Apron APRN, +5.73% jumped 5.7% after it named a new chief financial officer.
Shares of Carver Bancorp Inc. CARV, +197.30% surged nearly 200% on no apparent news.
What are other markets doing?
Asian markets finished mostly lower, while European stocks SXXP, +0.66% SXXP, +0.66% closed at a four-month high, with Italian politics and earnings in focus.
Gold futures GCM8, -0.15% settled 0.2% lower, while the ICE U.S. Dollar Index DXY, +0.05% inched up, while oil futures CLM8, +0.17% ended little changed at $71.49 a barrel, with Brent LCON8, +0.34% managing to eke out a slight gain.
