A three-day US stock rally took a breather amid deteriorating consumer sentiment and mixed corporate earnings that raised concerns about the impact of global trade war.
The S&P 500 Index and the Nasdaq 100 Index are both littled changed at 10:46 a.m. in New York. Dow Jones Industrial Average declined 0.6% and Russell 2000 Index was down 1%. The Cboe VIX Index hovered around 26.
Among single stock movers, Intel Corp. slumped 6.9% after the chipmaker gave an outlook that was weaker than expected. T-Mobile shares are down 11.1%, after the company reported new mobile-phone subscribers that missed expectations. Alphabet Inc. jumped, leading Magnificent Seven stocks higher after the Google parent reported first-quarter results that beat.
“Managements are cautious on forward guidance even as they not yet seen much deterioration due to the tariff announcements,” said Sarah Hunt, chief market strategist and partner of Alpine Saxon Woods. “The mixed messaging about what is happening on talks between the US and China on trade may also be one of the reasons market is slightly lower.”
US consumer sentiment fell to one of the lowest readings on record and long-term inflation expectations climbed to the highest since 1991 on fears of the economic fallout from tariffs. Some 12% of the respondents surveyed predict that there is zero chance of a stock market rally over the next year. That is far and away the most negative that people have been in the 22-year history of that indicator.
On the tariff front, President Donald Trump said he expected to wrap up trade deals with US partners in three to four weeks. Meanshile, China’s government is considering suspending its 125% tariff on some US imports, considering suspending its 125% tariff on some US imports, according to people familiar with the matter. Authorities are mulling removing the additional levies for medical equipment, some industrial chemicals like ethane as well as waiving the tariff for plane leases.
The track record of S&P 500 companies over the past two decades suggests their ability to withstand additional levies is fragile, at least by one measure. Nearly all of the margin growth eked out from corporate sales on the gauge since 2004 has come from the booming technology sector, according to Bloomberg Intelligence. Removing the group, profitability barely rose.
US stock market may also see less support from corporate buybacks. Goldman Sachs’ buyback desk is lowering estimates for US corporate share repurchases, following the research team who also trimmed forecasts. The desk now estimates the full market, including the S&P 500 and the Russell 3000, will see $1.35 trillion of buyback authorizations this year, versus $1.45 trillion previously.
Despite Friday weakness, the S&P 500 is on pace to post a 4% weekly gain, which would be the second biggest weekly return since September. On a sector basis, consumer discretionary, information technology and communication services are the biggest winners. While defensive sectors like health care and consumer staples are the laggards.
Still, to Bank of America Corp. strategists, investors should sell into rallies in US stocks and the dollar, cautioning that the conditions for sustained gains are missing.
Foreign investors have sold $63 billion of US equities since the start of March, Goldman Sachs strategists estimate, with Europeans driving the selling. Meanwhile, on a weekly basis, long-only global equity funds have their first weekly inflow since January, at $800 million, according to BofA.
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