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Stocks close little changed as tech shares and Ford weigh on the market

CNBC logo CNBC 9/10/2019 Fred Imbert

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Stocks ended the day little changed on Tuesday, weighed down by a continuing decline in tech shares while Ford was pressured by a downgrade to its credit rating.

The S&P 500 closed just above the flatline. The Nasdaq Composite closed marginally lower. The Dow Jones Industrial Average outperformed, rising 73 points, or 0.3% to post a five-day winning streak.

Shares of Facebook and Amazon fell 1.4% and 0.6%, respectively. The Technology Select Sector SPDR Fund (XLK) slid 0.5%. The S&P 500 tech sector was one of the worst performers on Monday, sliding 0.7%. Netflix shares dropped 2.2% after Apple unveiled a TV service for $4.99 per month.

Ford Motor fell 1.4% after Moody’s downgraded the auto maker’s credit rating to junk status, citing below-expectations profit margins and cash flow.

Tuesday’s moves come as value stocks outperformed their growth counterparts for the second straight session. The iShares Edge MSCI USA Momentum Factor ETF (MTUM) dropped 1.5%. The iShares Edge MSCI USA Value Factor ETF (VLUE) rose 1.4%.

Value’s outperformance over the past two sessions worried investors as a rotation away from growth stocks could lead to a broad-market decline. Dave Lafferty, chief market strategist at Natixis Investment Managers, is not too concerned.

“It’s way too soon to say this is a meaningful change from growth to value, but it you look at what underlies it are financials and energy,” Lafferty said.

He noted financials and energy have been beaten up in recent years. The S&P 500 energy sector is down around 5% over the past three years while financials are up 15.7% in that time. The S&P 500, meanwhile, is up 20% over the past three years.

“While it seems like there is this mini-rotation from growth into value, what’s really driving this is oil and the back-up in interest rates,” Lafferty said. Crude is up more than 5% over the past month while the 10-year Treasury yield has surged nearly 20 basis points this month. The benchmark rate traded at 1.69% on Tuesday.

The Dow came into Tuesday’s session riding a four-day winning streak on renewed optimism in U.S.-China trade talks. The U.S. Treasury Secretary, Steven Mnuchin, said that there is a “conceptual agreement” around intellectual property theft with China. This is one of the most contentious issues between both countries.

Meanwhile, Huawei dropped Tuesday one of its lawsuits against the U.S. This happened after some equipment seized by Washington nearly two years ago was returned to the company, CNBC reported.

Huawei’s lawsuit drop is the latest sign that tensions between the U.S. and China are easing ahead of a meeting scheduled for Oct. 1. The world’s largest economies have been engaged in a trade war since last year. Over that time, they have slapped tariffs on billions of dollars worth of their goods.

The South China Morning Post also reported Tuesday that China has offered to increase U.S. agricultural purchases in exchange for a delay in tariffs and easing of a supply ban against Huawei Technologies. Politico reported last week China had made a similar offer last week.

John Davi, chief investment officer at Astoria Portfolio Advisors, said people should not get their hopes up just yet. “You’ve seen consistently that the rhetoric can change very quickly with President Trump,” he said, adding recent manufacturing and CEO confidence data makes him more cautious in this environment. “You want to see any sort of trough in terms of the data and everything has been signaling things will get worse.”

Investors looked ahead to a European Central Bank policy meeting scheduled for Thursday. The central bank is expected to lower rates as well as unveil a new round of quantitative easing. The ECB will meet ahead of the Federal Reserve, which is forecast to lower rates by 25 basis points next week.

“The major central banks are providing yet another round of monetary easing,” Ed Yardeni, president and chief investment strategist at Yardeni Research, wrote in a note Tuesday. “They are doing their best to stimulate their economies and boost inflation closer to their 2.0% targets. However, their ultra-easy monetary policies haven’t worked as expected, so they keep doing more of the same.”

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