Jessica Menton and
The Wall Street Journal
U.S. stocks slumped for a third straight session Thursday as investors parsed data that showed U.S. economic growth softened in the final three months of 2018 and an early end to the U.S.-North Korea summit.
The Dow Jones Industrial Average dropped 33 points, or 0.1%, to 25955. The S&P 500 lost 0.1% and the Nasdaq Composite fell 0.2%. All three major averages are on course to close out February with gains of at least 3.1%. The Dow industrials and S&P 500 are both up 11% in 2019, on pace for their best-ever start to a year since 1987, according to Dow Jones Market Data.
Market participants sorted through fourth-quarter growth figures, which showed a slowdown in consumer spending offset a pickup in business investment.
Gross domestic product—a measure of how much the U.S. produces in goods and services—rose at a 2.6% annual rate in October through December, adjusted for seasonality and inflation, the Commerce Department said Thursday. Economists surveyed by The Wall Street Journal had expected a 2.2% reading.
The reading fell short of the 3.4% growth rate in the third quarter and 4.2% in the second.
Peter Cardillo, chief market economist at Spartan Capital Securities, said the fourth-quarter growth data was likely skewed by two things: the partial government shutdown and uncertainties surrounding a trade deal between the U.S. and China.
“It’s imperative that we get a trade deal, otherwise I’m afraid the economy could grow at a slower pace,” Mr. Cardillo said. “I believe we will get some sort of a resolution despite some of the hawks who are pressing for a strong deal. I doubt that’s achievable, but somewhere in the middle of the road is possible, and that will help the odds of a recession drop substantially in 2020.”
Investors this week got the strongest sign yet that a U.S.-China trade accord may be near, as U.S. Trade Representative Robert Lighthizer said Wednesday that America was abandoning for now its threat to raise tariffs to 25% on $200 billion of Chinese goods.
Stocks around the world have staged a sharp rally in 2019, with many of the economic and political developments that pressured assets at the end of 2018 having eased. Industrial stocks, which were among the groups that were pummeled on trade fears in the fourth quarter, are some of the best performers this year, will Boeing and Freeport-McMoRan surging 35% and 25%, respectively.
The S&P 500 industrial sector is up 18% in 2019, on pace for its best two-month start to a year ever, based on available data going back to 1990, according to DJMD. Still, some investors suggest stocks’ rally in 2019 has been overexuberant.
“The underpinning of this rally has been relief from all the pressures that were building last year: interest rates, trade, and the noise around Trump—one by one those have been removed,” said Abhay Deshpande, a portfolio manager at Centerstone Investors Trust. “On balance things are looking pretty good for stock markets, but we’ve had a straight up 20% rally so there could be a correction at any time.”
In Thursday’s action, technology stocks were among those the led U.S. losses, with HP Inc. shares tumbling 16%. The company reported earnings late Wednesday that missed sales targets for its latest quarter. HP’s Dow-listed peers Apple and Cisco slipped 0.7% and 0.4%, respectively.
Meanwhile, shares of J.C. Penney surged 27% after the struggling department store’s fourth-quarter profit and revenue topped analysts’ expectations. The retailer also said it would close 18 department stores and nine home and furniture stores this year.
President Trump on Thursday cut short a summit with North Korean leader Kim Jong Un after failing to reach an agreement on curbing North Korea’s nuclear-weapons program.
Haven assets responded to the summit’s early end. Gold was 0.3% lower at $1,317.40 a troy ounce after ticking higher overnight. Japan’s yen reversed its early-day losses to rise 0.3% against the dollar.
Meanwhile, the WSJ Dollar Index was flat, easing from the gains it made after Federal Reserve Chairman Jerome Powell said the central bank was close to announcing plans to end its bond portfolio runoff.
Elsewhere, the Stoxx Europe 600 rose 0.1%. Japan’s Nikkei index fell 0.8% while the Shanghai Composite Index and Hong Kong’s Hang Seng both lost 0.4%.
—Mike Bird contributed to this article.