Stocks closed lower Wednesday, with the S&P 500 snapping a five-day winning streak, after President Donald Trump’s State of the Union address offered few details on his economic agenda. The president, however, insisted China commit to real, structural economic reforms before a trade deal can be reached.
How did major indexes fare?
The Dow Jones Industrial Average DJIA, -0.08% slid 21.22 points to 25,390.30, while the S&P 500 index SPX, -0.22% shed 6.08 points, or 0.2%, to 2,731.62, and the Nasdaq Composite Index COMP, -0.36% fell 26.80 points, or 0.4%, at 7,375.28.
What drove the market?
In his speech to the nation Tuesday night, Trump said he had “great respect” for Chinese President Xi Jinping, adding that the two leaders are working on a new trade deal, while insisting that any agreement “include real, structural change to end unfair trade practices, reduce our chronic trade deficit and protect American jobs.”
Treasury Secretary Steven Mnuchin, during an interview with CNBC on Wednesday, confirmed that he and U.S. trade representative Robert Lighthizer will travel to Beijing next week to continue negotiations over the continuing trade dispute, as the administration-imposed March 1 deadline for a deal approaches, after which the president has threatened to expand tariffs on Chinese imports.
Trump reiterated a call for an infrastructure plan, but unlike last year didn’t put a price tag on it. The president also vowed to build a proposed border wall, but stopped short of declaring a national emergency. The markets are paying close attention to negotiations around the wall, with a stopgap compromise that reopened the government last month after a 35-day partial shutdown due to run out in about a week and a half.
Investors continued to sort through corporate earnings, while taking a widely expected slowdown in profit growth in stride. A dovish turn by the Federal Reserve last week and optimism over prospects for a U.S.-China trade deal have been credited for fueling a strong rebound for stocks after a fourth-quarter plunge.
U.S. manufacturing productivity rose 1.3% in the fourth quarter, up from 1.1% growth in the third quarter, the Labor Department reported. Data on overall productivity growth has yet to be released, due to the lingering effects of the government shutdown.
The U.S. trade deficit in November fell to $49.3 billion, below the October level of $55.5 billion in October and the consensus expectation of $53.7 billion, per a MarketWatch poll of economists.
What were analysts saying?
“The market has been focused on earnings, and macro concerns have taken a back seat” for now, Kevin Divney, senior portfolio manager with Russell Investments, told MarketWatch. “What’s driving the market now is stock-specific fundamentals” during an earnings season that has generally surpassed the lowered expectations investors had before companies began to report.
“For the past four or five quarters, companies that exceeded expectations have not been rewarded, but this quarter we seeing a pop when companies outperform. Executives have been managing expectations well,” he added.
Macro concerns, however, are looming in the background, with Brexit negotiations and the China trade spat potentially putting a lid on the market as investors price in risk that either of these situations could turn into a major headwind for corporate profits and sentiment, Divney said.
Analysts said there was little for investors to latch on to in the State of the Union address, though remarks on infrastructure and drug prices could have some impact.
“It is difficult to see how much bipartisan compromise will be possible in a year when a crowded field is running for president, but the pharmaceutical and construction subsectors could see moves,” said Chris Zacarelli, chief investment officer for Independent Investor Alliance.
What stocks were in focus?
Shares of Snap Inc. SNAP, +22.02% surged 22% after posting record quarterly revenue and narrowing its loss on the back of a boom in online advertising.
Walt Disney Co. stock DIS, -1.11% shed 1.1% after the entertainment giant reported stronger-than-expected holiday earnings.
Shares of General Motors Co. GM, +1.55% rose 1.6% after the auto maker beat Wall Street expectations for fourth-quarter revenue and profit.
Shares of Electronic Arts Inc. EA, -13.31% plunged 13% after the company missed holiday-season sales estimates and issued a downbeat outlook.
Rival Take-Two Interactive Holdings TTWO, -13.76% also sank 14% after reporting weaker-than-expected results for the fourth quarter.
Eli Lilly & Co. LLY, -0.96% shares slid 1% after the drug maker reported fourth-quarter earnings that fell short of Wall Street expectations while cutting its 2019 outlook.
Boston Scientific Corp. BSX, +2.70% gained 2.7% after the company issued its fourth-quarter earnings report Wednesday that showed the firm topping analyst projections for profits and sales.
Shares of Capri Holdings Ltd. CPRI, +11.30% jumped 11% after the Michael Kors and Versace parent reported fiscal third-quarter earnings that beat expectations.
How did other markets trade?
Japanese stocks rose, with the Nikkei 225 index NIK, -0.85% closing 0.3% higher. Markets in Hong Kong, mainland China and most of Asia were closed for Lunar New Year holidays. European stocks were mixed, with the Stoxx Europe 600 SXXP, +0.15% up 0.2%.
In commodities markets, crude oil CLH9, -0.30% reversed direction to rise, gold prices GCH9, -0.50% settled lower and the U.S. dollar DXY, +0.05% strengthened.
