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Pullback. All three major stock indexes slipped Thursday as the mini rally following the Federal Reserve’s third rate cut gave back some gains. U.S. consumer spending grew slower than expected in September, while manufacturing activities in both U.S. and China continued to deteriorate. Apple stock (ticker: AAPL) and Facebook stock (FB) jumped after both tech giants reported better-than-expected earnings for the September quarter, but Facebook might take some heat after rival Twitter (TWTR) announced that it’s banning political advertising on the social media platform. In today’s After the Bell, we...
- check the latest manufacturing data in both China and the U.S.;
- watch consumer spending grow even more;
- wonder if inflation will ever hit the Federal Reserve’s target 2%.
Continuing Weakness
Stocks were trading lower on Thursday, one day after the Federal Reserve announced the widely-expected rate cut after its October meeting. The Dow Jones Industrial Average declined 140.46 points, or 0.52%, to 27046.23. The S&P 500 has fallen 9.21 points, or 0.30%, to 3037.56, and the Nasdaq Composite slipped 11.62 points, or 0.14%, to 8292.36.
The 25-basis-points rate cut was the third this year as the central bank tries to sustain the aging economic expansion. Stocks rose on the news yesterday but gave up gains Thursday.
Investors have more things to watch today, and they’re not looking rosy. The Chicago Purchasing Managers’ Index released this morning was 43.2 in October—well below forecasts for a reading of 48.5 and fell to a nearly four-year low. Alarmingly, new orders dropped the worst print since the financial crisis in 2009.
Elsewhere, the purchasing managers index for China’s manufacturing sector also fell to 49.3 in October from 49.8 the previous month. The reading—already in the contraction zone below 50—came lower than consensus and fell to an eight-month low. The same index for China’s service sector also dropped to 52.8 in October from 53.7 the previous month, the weakest reading since February 2016.
The U.S. and China are set to sign a preliminary trade deal next month that could de-escalate some of the tensions between the two countries, and potentially boost Chinese purchases of American farm products and eliminate the planned U.S. tariffs on Chinese imports later this year.
Still, driven by the strong wage growth and falling interest rates, consumer spending in September remained resilient. Americans increased spending for the seventh month in a row, although at a more moderate pace last month, rising only 0.2%, a touch below the consensus forecast of 0.3% growth.
Americans spent more on big-ticket items such as new cars and homes, as well as health care. At the same time, as many started worrying about a potential recession in the following year or two, savings rate moved up to 8.3% from 8.1%, near a post-recession high.
Personal-consumption expenditures index—the Fed’s preferred inflation barometer—remained largely flat in September and the 12-month inflation rate fell to 1.3%, well below the Fed’s 2% target. Fed Chairman Jerome Powell said yesterday that low inflation was one of the reasons for the recent rate cuts and that the central bank won’t consider raising interest rates again until inflation reaches its annual target of 2% for a sustained period.
Write to Evie Liu at evie.liu@barrons.com