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Stocks end slightly lower after China data, earnings results

Emily McCormick
Reporter

U.S. stocks ended a choppy session slightly lower as investors considered stronger-than-expected economic data from China and a latest batch of corporate earnings results.

The S&P 500 ( ^GSPC ) edged down by 0.23%, or 6.61 points, as of market close. The Dow ( ^DJI ) slipped 0.01%, or 3.12 points, with gains capped as IBM shares slipped by more than 4% following weak quarterly sales results. The Nasdaq ( ^IXIC ) fell 0.05%, or 4.15 points.

On Wednesday, official data from China’s National Bureau of Statistics showed that the world’s second largest economy expanded by 6.4% in the first three months of the year, beating expectations for 6.3% growth. Beijing’s target for 2019 economic growth has previously been set for between 6% and 6.5% expansion.

The better-than-anticipated results were led largely by strong manufacturing activity and consumer spending in the first quarter. Industrial production rose 8.5% and retail sales increased 8.7% over the past year, with each exceeding consensus expectations. Fixed asset investment in China grew 6.3% in the first quarter, roughly in-line with expectations.

Although some market experts question the accuracy of economic data coming out of China, the latest results suggest government stimulus measures implemented earlier this year may be succeeding in supporting the economy. In March, Chinese Premier Li Keqiang announced a set of tax and fee reductions, including a cut to the value-added tax rate for the manufacturing sector, along with plans to increase infrastructure financing.

Elsewhere, investors are bracing for the next set of technology unicorns to hit the public markets, following ride-hailing company Lyft’s ( LYFT ) roller-coaster debut late last month. Digital pinboard company Pinterest and video conferencing company Zoom will each price their initial public offerings Wednesday evening, and each is set to begin trading on Thursday.

The results of the latest pair of tech public offerings will provide investors with further indications of the potential success – or lack thereof – of other major IPOs expected to come later this year, including that of Uber and Palantir.

Pinterest and Zoom are set to price their initial public offerings Wednesday evening. (Photo by Justin Sullivan/Getty Images)

A strong U.S. equity market and relatively low volatility in the first quarter have provided a solid backdrop for new companies to hit the public markets. However, the tempestuous results of Lyft’s IPO late last month have led to some concern over the sustainable interest in some of this year’s most highly anticipated public offerings.

Lyft’s debut was initially greeted by the investment community, with shares priced at its IPO ahead of its originally targeted range. However, enthusiasm quickly cooled after the company’s stock opened for trading, with shares now trading lower by about 17% from its IPO price.

Steep reported losses are central to the concerns for some of the latest companies, especially given Lyft’s $911 million reported net loss last year. Pinterest reported a net loss of $63.0 million in 2018 on $755.9 million in revenue. Zoom, however, most recently posted a profit , reporting net income of $7.5 million and $330.5 million in revenue for the year ending January 31.

STOCKS

Netflix ( NFLX , -1.31%) on Tuesday evening reported a weak outlook for new subscriber additions in its fiscal second quarter , especially in the company’s domestic market. The streaming giant said it expects to add 5 million net streaming additions for the second quarter, below Wall Street’s expectations for 6.09 million new subscribers. However, in the fiscal first quarter, the company added a total of 9.6 million new subscribers, the highest quarterly net additions in company history. First-quarter adjusted earnings of 76 cents and revenue of $4.52 billion each exceeded consensus estimates.

IBM ( IBM , -4.18%) posted a third consecutive quarter of year-over-year declines in revenue, with first-quarter revenues of $18.2 billion, down 4.7% from the year prior. Quarterly operating EPS of $2.25 beat consensus expectations by 3 cents. Revenue in the company’s cloud and cognitive software unit fell 2% to $5 billion for the first three months of the year, while global technology service revenues fell 7% to $6.9 billion. IBM reiterated its full-year 2019 guidance to see operating diluted EPS of at least $13.90, excluding some charges.

Morgan Stanley ( MS , +2.64%) beat consensus expectations on the top and bottom lines in first-quarter results, driven by strength in its wealth management unit and helped by a smaller-than-expected decline in trading revenues. Bond trading revenue came in at $1.71 billion, or about $200 million ahead of consensus estimates, while equity trading revenue of $2.02 billion was just under the $2.05 billion expected. The combined 15% year-over-year decline in trading revenue was better than the 17% drop expected. Wealth management revenues edged higher over last year to $3.9 billion, and assets under management rose to $480 billion, from $469 billion.

ECONOMY

The U.S. trade deficit unexpectedly narrowed to $49.4 billion in February from a revised $51.1 billion in January, according the Census Bureau’s report released Wednesday. Consensus expectations were for the trade deficit to have widened to $53.4 billion for the month, according to Bloomberg data. February’s results mark the lowest deficit since June 2018, and reflect a 1.1% increase in exports – driven primarily by a jump in volatile aircraft exports – and a 0.2% increase in imports.

“After falling sharply in January, the trade deficit declined a little further in February thanks to a jump in civilian aircraft exports and a subdued gain in imports,” Michael Pearce, senior U.S. economist for Capital Economics, wrote in a note Wednesday. “Neither of those are particularly compelling reasons to be upbeat about economic prospects this year, but the figures do at least confirm that net trade provided a substantial positive contribution to first-quarter GDP growth.”

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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