Stocks surged Thursday on the back of movement on Phase I of a trade deal between the U.S. and China, but the party may have been a little too raucous because there was some hangover today as equities barely budged.
- The S&P 500 added just 0.01%
- The Dow Jones Industrial Average eked out a gain of 0.01%
- The Nasdaq Composite advanced 0.20%
- For the second time this week and again on light news, American Express (NYSE:AXP) was in the spotlight, leading the Dow on what appears to be a technical breakout
So here’s where we’re at with trade: Phase I appears to be a go and the tariffs that the U.S. was set to impose on Chinese imports on Sunday will be averted, explaining why Apple (NASDAQ:AAPL) ascended to a record high today.
Explaining why Thursday’s ebullience waned today, the White House is leaving in place some of the tariffs it previously levied on Chinese goods.
“We have agreed to a very large Phase One Deal with China,” said President Trump on Twitter. “They have agreed to many structural changes and massive purchases of Agricultural Product, Energy, and Manufactured Goods, plus much more. The 25% Tariffs will remain as is, with 7 1/2% put on much of the remainder.”
In speaking with the press today, Trump mentioned desire on China’s part to get to work on Phase II of a trade package, but investors should not expect much action on that front over the near-term.
With just 13 of the 30 members higher in late trading, the Dow was likely reflecting expectations that Phase I is as good as gets for the time being.
Fighting Off Data
The Commerce Depart said today that U.S. retail sales rose 0.2% last month, well below the 0.5% increase economists were expecting, a scenario almost universally blamed on Thanksgiving arriving a week later than usual. Taking some of the sting off that result was the October number being revised up to growth of 0.4%.
“The data suggest a slowdown in business investment and weakness in manufacturing is weighing more broadly on Americans’ willingness to spend, which could mean a soft holiday-shopping season despite a relatively strong labor market, improved wage gains and record stock prices,” according to Bloomberg.
That’s a somewhat gloomy take, the accuracy of which is challenged by the fact that on a day in which a weaker-than-expected retail sales number was revealed, Home Depot (NYSE:HD), McDonald’s (NYSE:MCD) and Walmart (NYSE:WMT), Dow stocks with significant exposure to consumer spending, all traded higher.
Speaking of the Consumer…
Nike (NYSE:NKE) was another one of the Dow’s consumer discretionary names trading modestly higher today. Nike is a name to watch over the next several days because the athletic apparel giant reports fiscal second-quarter results on Dec. 19.
Wall Street is expecting year-over-year earnings per share growth of 10.5% on sales growth of 7.5%. Investors appear to be betting on a solid report from Nike because the stock is up more than 9% just this month.
Gaming Update
Microsoft (NASDAQ:MSFT) added nearly 1% today after the company revealed plans for the Xbox Series X, the next generation of its popular video game console. As I’ve recently noted, 2020 is setting up to be a big year on the hardware upgrade front in the video game industry where Microsoft is one of the dominant players.
Microsoft “said it will run 4K graphics at 60 frames per second, though the system has the capabilities to hit up to 120 FPS, with support for Variable Refresh Rate and 8K capability,” reports Barron’s.
Both the Xbox Series X and the rival PlayStation 5 will be available during the 2020 holiday shopping season.
Financial Fun
As noted above American Express was a Dow leader today, but the same can’t be said of fellow Dow financial components JPMorgan Chase (NYSE:JPM) and Goldman Sachs (NYSE:GS).
However, it’s worth noting that the broader financial services sector is breaking out to multi-year highs and that the group remains attractively valued. More upside could be in store next year.
Bottom Line on the Dow Jones Today
Although Nike reports next week, there’s some time between now and the true start of fourth-quarter earnings season, but there are some data points for investors to mull in that regard.
“The estimated (year-over-year) earnings growth rate for CY 2019 is 0.3%, which is below the 10-year average (annual) earnings growth rate of 9.1%,” notes FactSet. “If 0.3% is the actual growth rate for the year, it will mark the lowest annual growth rate for the index since CY 2015 (-0.6%). Six sectors are projected to report year-over-year growth in earnings, led by the Utilities and Health Care sectors.”
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.