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Record Territory. All three main stock indexes ended the day in the black, while the S&P 500 hit a new intraday high, briefly moving past 3025.86. Investors continue to worry about trade and the state of the economy, while earnings results kept rolling in with both good and bad news. Amazon.com stock (ticker: AMZN) tumbled and then mostly recovered after the online giant reported a rare miss in profits, while Intel stock (INTC) soared following better-than expected earnings. In today’s After the Bell, we…
- check on the latest developments in trade talks;
- watch the federal deficits widen yet again;
- and explain how Amazon stock managed to come back in Friday trading.
Let’s Make a Deal
Optimism for a preliminary trade deal between the U.S. and China remains elevated, lifting the financial market on Friday. The Dow Jones Industrial Average gained 152.53 points, or 0.57%, to close at 26,958.06. The S&P 500 rose 12.26 points, or 0.41%, to finish at 3022.55, and the Nasdaq Composite surged 57.32 points, or 0.70%, to close at 8243.12.
U.S. Trade Rep. Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke by telephone with Chinese Vice Premier Liu He on Friday, and claimed that the two sides are close to finalizing some sections of the agreement.
Still, on a different front, China fired back at Vice President Mike Pence’s speech in Washington yesterday, in which Pence criticized Beijing for human-rights issues and unfair trade practices. Chinese foreign ministry spokeswoman Hua Chunying blasted Pence’s “arrogance” and accused him of trying “to disrupt China’s unity or internal stability.” Issues regarding Hong Kong, Taiwan (which China claims as a province), and Muslim minorities are China’s “internal affairs.” she stated.
Meanwhile, as the government outlays kept outpacing the tax revenue, the U.S. budget gap continues to widen, reaching its largest margin in seven years. Despite a strong jobs market and solid corporate profits—usually meaning higher government tax revenue—deficits have widened thanks to the Trump administration’s tax cuts and higher spending on the military, interest payments on the debt, and Medicare.
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For fiscal 2019 ended Sept. 30, federal spending climbed 8% from a year ago to $4.4 trillion, while revenue increased only 4%. That leaves the government with a $984 billion deficit for fiscal 2019, a 26% increase from $779 billion last year.
While the stock market is generally upbeat on Friday, Amazon stock’s tumble has occupied the headlines on a relatively quiet day. The e-commerce giant missed third-quarter earnings estimates for the first time in two years, and also provided a lower-than-expected fourth-quarter sales guidance. Spooked by the news, Amazon stock tumbled as much as 4% after Thursday’s close, but recovered some of that loss during Friday’s trading. The stock finished 1.1% down from Thursday’s close by the end of the session.
After digesting the initial shock, investors appear to understand that Amazon management is investing in its business at the expense of short-term profitability, which has proven, historically, to pay off eventually. The third-quarter miss is partly attributed to the costs of expanding one-day delivery, which has cut into the operating margins of the e-commerce business. The company’s cloud business, Amazon Web Services, has also seen growth slow and narrower margins due to the costs of building out sales-and-marketing personnel.
Write to Evie Liu at evie.liu@barrons.com