The S&P 500 trimmed this week's rally by 0.2% on Thursday with market participants shifting focus to this weekend's G-20 meeting between U.S. President Donald Trump and China President Xi Jinping.
Meanwhile, the Dow Jones Industrial Average lost 0.1%, the Nasdaq Composite lost 0.3%, and the Russell 2000 lost 0.3%.
Though the market succumbed to early profit-taking from Wednesday's Powell-driven rally, stocks gradually climbed from session lows as news wires heated up with U.S.-China trade headlines. Despite the uncertainty surrounding the meeting, The Wall Street Journal report published Thursday is probably as good a preview of what an eventual best-case outcome will be from the G-20 meeting. The Wall Street Journal noted (unnamed) officials on both sides are floating the idea of forestalling any further tariffs through the spring to set the stage for a new round of talks to address changes in China's economic policy.
It would be a small victory for the market if there was an agreement at the G-20 meeting to hold off on such tariff actions, yet it isn't the ultimate solution since it kicks the tariff can down the road without eliminating the threat that further tariffs will be imposed.
In addition, The South China Morning Post reported that Peter Navarro, a well-known China trade hawk, will be attending the dinner meeting between President Trump and President Xi on Saturday. Mr. Navarro's presence at the dinner table briefly unnerved investors.
Separately, the Federal Open Market Committee (FOMC) released its minutes from its November 7-8 meeting. Though the market crossed into positive territory shortly after its late afternoon release, one should not get too caught up with the minutes.
Some reasons include (1) the fact that Fed Chair Powell had already stated "interest rates... remain just below the broad range of estimates of the level that would be neutral for the economy," and (2) the market has already been handicapping the strong likelihood that the target range for the fed funds rate will be increased to 2.25% to 2.50% at the December 18-19 FOMC meeting. The latest minutes largely echoed Mr. Powell's language and the likelihood of a December rate hike.
Back to stocks, the heavily-weighted information technology (-1.0%) and financial (-0.8%) sectors weighed on the broader market.
Apple (AAPL 179.55, -1.39, -0.8%) and other tech heavyweights dragged on the group. The sector, though, had risen 6.0% for the week heading into Thursday's session. On the other hand, Qualcomm (QCOM 58.11, +1.46) was a bright spot after the company's former Chairman said in a Bloomberg interview that he is still thinking about taking the company private.
Also, the financial sector was pressured by weak housing data that weighed on investor sentiment. Pending home sales declined 2.6% in October, reported on the heels of a report showing new home sales declined 8.9% in October. The weak reports have fueled concerns about weakening mortgage loan demand, which is a negative for many banks and many of the regional banks in particular. Charles Schwab (SCHW 44.16, -1.50) was a notable financial laggard with a loss of 3.3%.
Conversely, the energy (+0.6%), materials (+0.6%), communication services (+0.4%), and health care (+0.3%) sectors outperformed the broader market.
The oil-sensitive energy group benefited from WTI crude rebounding 2.5% to $51.46/bbl. Crude bounced on the hope that the recent downturn in oil prices will spur OPEC+ producers to agree to a meaningful production cut next week.
FANG stocks Facebook (FB 138.68, +1.92, +1.4%), Netflix (NFLX 288.75, +6.10, +2.2%), and Alphabet (GOOG 1088.30, +2.07, +0.2%) extended gains to lift the communication group.
In earnings, Dollar Tree (DLTR 88.43, +5.11) rose 6.1% after it beat earnings estimates. The discount store company did guide its Q4 earnings and revenues below consensus, however. Also, Abercrombie & Fitch (ANF 20.70, +3.58) spiked 20.9% after a shift in identity helped the clothing retailer beat earnings expectations.
Elsewhere, U.S. Treasuries finished near their unchanged marks with the benchmark 10-yr yield losing one basis point to 3.04%. Also, the U.S. Dollar Index finished flat at 96.76.
Reviewing Thursday's economic data, which included PCE Price Index for October, Personal Income and Spending for October, Pending Home Sales for October, and weekly Initial and Continuing Claims:
- Personal income increased 0.5% in October (Briefing.com consensus +0.4%) while personal spending jumped 0.6% (Briefing.com consensus +0.4%). Real PCE, which is the component that factors into Q4 GDP forecasts, was up a solid 0.4%. The PCE Price Index was up 0.2% and the core PCE Price Index, which exclude food and energy, was up 0.1% (Briefing.com consensus +0.2%).
- The tame inflation readings are the key takeaway from the report since they are supportive of the Federal Reserve taking a more deliberate approach to raising the fed funds rate.
- Pending Home Sales decreased 2.6% in October (Briefing.com consensus +0.7%). Today's reading follows a revised 0.7% increase in September (from +0.5%).
- Initial claims for the week ending November 24 increased by 10,000 to 234,000 (Briefing.com consensus 218,000) while continuing claims for the week ending November 17 increased by 50,000 to 1.710 million.
- The key takeaway from the report is that it is apt to contribute to assertions that the bottom for the trend in initial and continuing claims may have been reached in this cycle.
Looking ahead, investors will receive the Chicago PMI for November on Friday.
- Nasdaq Composite +5.4% YTD
- Dow Jones Industrial Average +2.5% YTD
- S&P 500 +2.4% YTD
- Russell 2000 -0.7% YTD