The three major U.S. stock indices closed higher for the fourth consecutive day as three days of meetings between trade delegations from the U.S. and China appeared to end on a positive note.
U.S. equities are kicking off the new year on a high note, with the S&P 500 closing higher for all but one session so far in 2019. More dovish tones from Federal Reserve officials and optimism about progress toward a resolution for the U.S.-China trade war have helped reinvigorate investors’ risk appetite.
A return to risk assets following December’s sharp sell-off has also sent crude oil prices higher, with the commodity’s prices on track for an eighth consecutive session of advances. Prices for West Texas Intermediate crude (CL=F) settled higher by 5.2% to $52.36 per barrel, while prices for Brent crude (BZ=F) advanced 4.3% to $61.27 per barrel at about 2:25 p.m. ET.
Delegations from the U.S. and China concluded trade discussions on Wednesday, which lasted longer than expected in a signal that both sides were “serious in conducting the consultations,” according to Chinese Foreign Ministry spokesperson Lu Kang. The upbeat outlook added fuel to a broad rally from Asia to Europe, with the Hang Seng Index up 2.27% and the Shanghai Composite higher by 0.71% on Wednesday.
The United States Trade Representative released a statement Wednesday elaborating on some of the details of the meeting. According to the statement, the delegations discussed trade fairness and reciprocity, and were engaged “with a view to achieving needed structural changes in China with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft of trade secrets for commercial purposes, services, and agriculture.”
“The talks also focused on China’s pledge to purchase a substantial amount of agricultural, energy, manufactured goods, and other products and services from the United States,” the USTR said in the statement. “The United States officials conveyed President Trump’s commitment to addressing our persistent trade deficit and to resolving structural issues in order to improve trade between our countries.”
Wednesday afternoon, the Federal Reserve released minutes from the December meeting of the Federal Open Market Committee, during which members announced the fourth rate hike of 2018 and raised the benchmark interest rate by 25 basis points to 2.25% to 2.5%. The minutes, published at 2 p.m. ET, suggested that Fed officials were being more cautious about future rate hikes.
Several participants “favored no change in the target range at this meeting, judging that the absence of signs of upward inflation pressure afforded the Committee some latitude to wait and see how the data would develop amid the recent rise in financial market volatility and increased uncertainty about the global economic growth outlook,” according to the minutes. “Many participants expressed the view that, especially in an environment of muted inflation pressures, the Committee could afford to be patient about further policy firming.”
Meanwhile, the partial government shutdown has entered its 19th day, making it the second longest in U.S. history. Congressional Democrats and President Donald Trump have hit an impasse over providing $5 billion in funding for a wall at the southern border, preventing lawmakers from passing funding measures for a swathe of agencies. Trump delivered a televised address Tuesday night declaring a wall is “absolutely critical to border security,” which was combatted by an immediate televised response from House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer, who called the wall unnecessary.
On Wednesday, Trump stormed out of a meeting with Pelosi and Schumer, writing in a Twitter post that it was a “total waste of time.”
“I asked what is going to happen in 30 days if I quickly open things up, are you going to approve Border Security which includes a Wall or Steel Barrier? Nancy said, NO. I said bye-bye, nothing else works!” Trump said in the post.
While the ongoing government shutdown has not made a visible impact on the U.S. equity market to date, it has led several major firms to adjust their outlooks for the broader economy. Bank of America Merrill Lynch adjusted its fourth-quarter GDP tracking estimate a tenth lower to 2.8% “to reflect the economy impact of the government shutdown,” the firm’s analysts wrote in a note Monday. And analysts from JPMorgan wrote in a note Friday that each week of the shutdown would likely reduce annualized GDP growth by about 0.1 to 0.2 percentage points. This considers the estimated 800,000 workers directly impacted by the shutdown – or about 35% of the federal civilian workforce – and the fact that non-defense federal spending accounts for about 2.6% of total GDP.
STOCKS: Second largest U.S. homebuilder misses expectations in quarterly results
Homebuilding company Lennar (LEN) reported disappointing quarterly results on the top and bottom lines and missed on new orders estimates, reflecting slowing demand in the U.S. housing market amid home supply shortages and rising material costs and interest rates. Revenue for the fourth quarter of 2018 came in at $6.46 billion, missing estimates of $6.53 billion, according to Bloomberg data. Adjusted earnings were $1.96 per share, also falling short of consensus estimates of $2.03. The Miami, Florida-based homebuilder reported net new orders of 10,611 versus expectations of 11,300.
“During the fourth quarter, we continued to experience slower sales due to higher home prices and rising mortgage rates, consistent with what we highlighted on our third quarter conference call,” CEO Stuart Miller said in a statement . “We continue to believe that the housing market is adjusting to a temporary disconnect between sales prices and buyer expectations and that the basic underlying fundamentals of low unemployment, higher wages and low inventory levels remain favorable.”
The company also deferred providing guidance for fiscal 2019 “due to continued softness and uncertainty at this seasonally slow time of year.” While shares initially slipped following the report, they reversed to close higher by nearly 8% after company executives said during a conference call Wednesday that they are optimistic that improved consumer confidence and wage growth, along with lower mortgage rates, will help spur home sales activity.
Apple (AAPL) is reportedly cutting iPhone production by about 10% during the next three months, according to a report Wednesday from Nikkei Asian Review. The report follows Apple’s unexpected announcement last week slashing its revenue guidance for the fiscal first quarter of 2019, citing weakness, which initially dragged down shares of both the tech giant as well as those of its key suppliers. On Tuesday, Skyworks Solution (SWKS), an American semiconductor company and Apple supplier, cut its revenue and profit guidance for the fiscal first quarter, citing a weaker smartphone market.
Piper Jaffray initiated coverage of Canadian cannabis companies Tilray (TLRY) and Canopy Growth Corporation (CGC), rating shares of each company Overweight. The firm carries a price target of $90 for Tilray, suggesting about 8% upside from Tuesday’s closing prices. Piper Jaffray’s $40 price target for Canopy Growth Corporation suggests a 35% upside. This comes following Cowen’s upwardly revised prediction for U.S. cannabis sales to hit $80 billion by 2030, from $75 billion seen previously.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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