- Dow Jones futures are almost flat this morning.
- Negative economic data and Nike’s weak performance could dent the stock market.
- Concerns about the impact of the U.S.-China trade deal could be another concern.
Futures on the Dow Jones Industrial Average (DJIA) are nearly flat early Friday morning, indicating that the stock market could end the week on a negative note. The Dow shot up to record highs yesterday despite a spate of negative developments. But it looks like the rally will not last on the final trading day of the week.
Dow component Nike poses the first challenge for the stock market today. Though the sports apparel giant’s earnings report was better-than-anticipated, the stock fell as tariffs dented margins. Nike doesn’t expect any margin improvements in the current quarter, indicating that the easing of the U.S.-China trade war won’t have an immediate positive impact on the results.
— Yahoo Finance (@YahooFinance) December 19, 2019
Not surprisingly, Nike shares are in the red in pre-market trading this morning, and this could be the precursor to a bad day for the stock market.
Lack of Catalysts Paints Dow Futures Red
Dow futures are essentially flat as at 5.43 am ET at 28,393 points, up just 0.02 percent. The early pattern for the day indicates that the market might remain volatile as it looks for a fresh catalyst. Dow futures had slumped to 28,373 points at 2.04 am ET before recovering slightly, and then falling again.
Futures on the S&P 500 and Nasdaq Composite are also flat.
The stock market could tilt lower as headwinds emerge
Apart from Nike, a few other factors could cause the Dow to give up yesterday’s gains. The state of the economy doesn’t appear to be completely bullish after all considering that jobless claims for the week ending Dec. 14 came in at 234,000. Though this was lower than the prior week’s reading of 252,000 (which was a two-year high), economists were expecting the number to come in much lower at 225,000.
Jobless Claims Are Ticking Up. That Could Indicate a Hiring Slowdown. https://t.co/jMA5uL1McT
— Barron's (@barronsonline) December 19, 2019
The less volatile four-week rolling average of jobless claims jumped to 10-month highs of 225,500. Meanwhile, the housing market shows further signs of a crack as existing home sales fell 1.7 percent in November, according to the National Association of Realtors. NAR chief economist Lawrence Yun pointed out:
Sales will be choppy when inventory levels are low, but the economy is otherwise performing very well with more than 2 million job gains in the past year.
But the latest jobless claims should temper Yun’s enthusiasm, and it is likely that the economy might not be in as great a shape as he anticipates. Further proof of the same will arrive today when consumer spending data and personal income data for the month of November is released. The real gross domestic product (GDP) numbers for the third quarter are also anticipated today.
If these data points turn out to be weaker-than-expected, the Dow will end the week on the back foot. On the other hand, the enthusiasm related to the U.S.-China trade deal could fade further today. The South China Morning Post reports that noted Chinese researcher Fan Gang believes that the relations between the two countries might not turn normal anytime soon:
The phase one deal is certainly a good thing, but we need long-term views because the [bilateral] problems may not be sorted out in the short-run.
It won’t be [fixed] as quick as five to 10 years.
Meanwhile, manufacturers might not get a big relief from the deal. Pantheon Macroeconomics’ chief economist Ian Shepherdson points out:
The ‘phase one’ trade deal leaves most of the tariffs in place. These are welcome developments for retailers, wholesalers and importers of consumer goods, but they offer no relief for manufacturers, so we expect only a very modest bounce in the business surveys as a result of the deal.
All these developments could end up knocking the wind out of the Dow Jones and the broader stock market today.