U.S. stocks fell, to end a three-day rally, in the wake of conflicting words from White House officials and President Trump that a trade plan for China was in the works and tech sector weakness following Dow member Apple’s disappointing guidance. Another stronger-than-expected labor report reflected a tight labor market ahead of voters weighing in at next week’s midterm elections. Treasury yields were notably higher and the U.S. dollar dipped for a second day. Crude oil was lower and gold prices were higher.
The Dow Jones Industrial Average (DJIA) fell 111 points (0.4%) to 25,269, the S&P 500 Index decreased 18 points (0.6%) to 2,723, and the NASDAQ Composite dropped 77 points (1.0%) to 7,357. In heavy volume, 1.0 billion shares were traded on the NYSE and 2.9 billion shares changed hands on the NASDAQ. WTI crude oil fell $0.83 to $62.89 per barrel and wholesale gasoline was $0.02 lower at $1.70 per gallon. Elsewhere, the Bloomberg gold spot price decreased $0.41 to $1,233.02 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 96.47.
Dow member Apple (AAPL $207) reported fiscal Q4 earnings-per-share (EPS) of $2.91, as revenues rose 20.0% year-over-year (y/y) to $62.9 billion, above the projected $61.5 billion. Shipments for iPhones and iPads came in below expectations, while Mac shipments topped expectations. AAPL issued Q1 revenue and gross margin guidance with midpoints that were south of estimates. The company also noted that it will no longer issue unit sales figures for its iPhone, iPad and Mac. Analysts shared disappointment over loss of the disclosure but noted that a new Services gross margin disclosure will take its place. Shares traded sharply lower.
Starbucks Corporation (SBUX $64) posted fiscal Q4 EPS of $0.56, or $0.62 ex-items, compared to the projected $0.60, with revenues rising 11.0% y/y to $6.3 billion, roughly in line with expectations. Q4 same-store sales grew 3.0% y/y, above the estimated 2.4% gain. SBUX issued current year guidance that had midpoints that exceeded forecasts. Analysts commented that a new platform in China helped drive results and that the company’s delivery partnership with Alibaba in Beijing was off to a good start. Shares climbed higher.
Nonfarm payrolls rose by 250,000 jobs month-over-month (m/m) in October, compared to the Bloomberg forecast of a 200,000 increase, but the rise of 134,000 seen in September was revised to a gain of 118,000 jobs. The net revisions to job gains for September and August offset each other. Excluding government hiring and firing, private sector payrolls increased by 246,000, versus the forecasted gain of 195,000, after rising by an unrevised 121,000 in September.
The unemployment rate remained at 3.7%, matching estimates, while average hourly earnings were up 0.2% month-over-month (m/m), in line with projections and below September’s unrevised 0.3% gain. Y/Y, wage gains were 3.1% higher, matching estimates, and versus September’s 2.8% rise. Finally, average weekly hours were 34.5, up slightly from September’s downwardly revised 34.4 rate, as expected. The bounce in pay for American workers was the largest since 2009, while unemployment remained at a 48-year low.
The trade balance showed that the deficit widened more than expected to $54.0 billion in September, compared to forecasts of $53.6 billion. August’s deficit was revised upward to $53.3 billion. Exports were up 1.5% m/m at $212.6 billion, while imports also gained 1.5% m/m to $266.6 billion.
Treasuries were lower, as the yields on the 2-year note, 10-year note and 30-year bond increased 8 basis points (bps) to 2.91%, 3.21% and 3.45%, respectively.
©2018 Charles Schwab & Co., Inc., Member SIPC. All rights reserved.
Schwab Center for Financial Research (“SCFR”) is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.