Foot Locker, J.C. Penney, consumer sentiment — What you need to know in markets on Friday

Myles Udland
Markets Reporter

March started with a messy day in the stock market.

With a hectic news flow punctuated by President Donald Trump’s announcement that he would impose 25% tariffs on imported steel and a 10% tariff on aluminum imports, markets sold off hard on the first day of the month.

When the dust settled, the Dow was off 420 points, or 1.7%, the S&P 500 lost 36 points, or 1.3%, and the Nasdaq fell 92 points, or 1.3%.

Andrew Hunter, U.S. economist at Capital Economics, said in a note Thursday that Trump’s announcement did not come as a huge surprise, but adds that, “the move to slap across-the-board tariffs…marks Trump’s first big step towards fulfilling the protectionist agenda he championed in the 2016 election campaign.”

President Donald Trump speaks during a meeting with steel and aluminum executives in the Cabinet Room of the White House, Thursday, March 1, 2018, in Washington. From left, Beth Ludwig of AK Steel, Roger Newport of AK Steel, John Ferriola of Nucor, Trump, and Dave Burritt of U.S. Steel Corporation. (AP Photo/Evan Vucci)

So while 2017 was a year markets spent ignoring all the things experts did not like about Trump’s economic agenda, 2018 could be a year when these risks feature more prominently in markets.

On Friday, markets will get a few more retail earnings after a busy week for the sector with Foot Locker (FL) and J. C. Penney (JCP) both set to report results.

The economic data calendar will feature the final reading on consumer sentiment in February from the University of Michigan; the preliminary reading on confidence in February showed consumers were undeterred by the stock sell-off seen in early February.

We’d also note that while Friday is the first Friday of the month we will not get a jobs report, with the February jobs report due out on March 9th.

Soft data is soaring

Consumers and business owners are thrilled with the U.S. economy.

On Thursday, the Institute for Supply Management’s reading on manufacturing activity in February moved to another cycle high of 60.8, with business owners providing another rounds of comments that makes the U.S. economy sound like one growing a lot faster than economic data is saying.

“The rise in the ISM manufacturing index in February to a 13-year high suggests that activity growth is set to pick up following a soft start to the year. On past form, the index is consistent with real GDP growth of more than 5% annualised,” said Andrew Hunter, U.S. economist at Capital Economics.

In the ISM’s report an executive in the machinery industry said, “It seems the tax break for business is making a difference. Customers are spending more for capital equipment.” Another executive in the industry said, “We expect to have a strong year in 2018. In expectation, we have added to our sales staff and plan on adding to our production staff.” The report also showed some signs of inflation, with the prices paid index rising again to 74.2

But the main story with the ISM data is that when it comes to “soft” economic data — consumer and business surveys, for example — the way that people talk about the economy is a whole lot more optimistic than the 2.5% GDP growth we saw in 2017.

“[Thursday’s] ISM report is the latest signal that positive sentiment is giving way to euphoria in the manufacturing sector, yet this comes amid a run of admittedly lousy hard data,” said John Silvia, chief economist at Wells Fargo.

In time, either the soft data will have shown businesses and consumers were too optimistic on the economy, or actual activity will accelerate to match the optimism we’re seeing in these surveys.

Though as Silvia notes, “In times of such pronounced survey strength, the gap between hard and soft data is usually narrowed by business surveys getting reined in, rather than the hard orders data experiencing a marked acceleration.”

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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