Stocks came off lows Wednesday morning as weaker construction spending and sluggish manufacturing activity revived hopes that an interest rate hike from the Federal Reserve could come later than this summer.
The S&P 500 fell 0.03%, the Dow Jones Industrial Average slipped 0.17%, and the Nasdaq gained 0.06%.
Construction spending declined 1.8% in April, coming back from a solid March. The decline fell well short of estimates for a 0.7% increase. The surprise drop was mostly due to unexpectedly weaker residential spending, which dropped 1.5%, according to the Commerce Department. Public construction spending slid 2.8%.
U.S. manufacturing slightly recovered in May, though underlying signs of weakness remained. Manufacturing rose to 51.3 in May from 50.8 in April, according to the Institute for Supply Management's index, above estimates for a decline to 50.2. A level above 50 indicates expansion.
"Even though the pick-up in the headline ISM manufacturing index was welcome, the details of the report was far less encouraging than suggested by the headline strength given that the swing factor was the big move in suppliers' deliveries sentiment," Millan Mulraine, deputy chief U.S. macro strategist at TD Securities, wrote in a note.
Investors have been on the lookout for any data that may give the Federal Reserve pause in raising rates at coming meetings. The majority of Fed members have implied that a summer rate hike is on the table.
Two fewer selling days in May compared to a year earlier contributed to less foot traffic in manufacturers' showrooms. Ford (F) - Get Report reported a nearly 6% decline in total vehicle sales over the month. The automaker's sales were dragged on by a 25% slump in car sales, which overshadowed a 8.9% increase in truck sales.
General Motors (GM) - Get Report suffered an 18% decline in overall sales, tied to a 13% drop in retail revenue. The No. 1 automaker in the U.S. also blamed tight supplies of newer models. GM said production of new models was disrupted by earthquakes at its Japanese factories.
Fiat Chrysler (FCAU) - Get Report managed to lift sales by 1.1% over the month, thanks to a surge in demand for its Jeep model. Overall sales had their best May in 11 years, driven by a 14% jump in sales for its Jeep brand.
More signs of a weak manufacturing sector emerged from China overnight. A closely watched index monitoring China's manufacturing sector showed another decline in May, the 15th straight month in contraction territory. The Caixin Purchasing Managers' Index, a nonofficial measure compiled with Markit Economics, settled at 49.2 in May, down from 49.4 in April.
The measure conflicts with official data showing manufacturing expansion in the world's second-largest economy, a worrying disconnect for investors uncomfortable with uncertainty. The government's data showed manufacturing PMI unchanged at 50.1 in May, only just above the 50-level indicative of expansion.
Fresh worries over China sent crude oil prices lower. Supply worries were already pressuring commodities as Organization of Petroleum Exporting Countries ministers gathered in Vienna for a meeting to discuss the demand-supply imbalance. West Texas Intermediate crude oil was down 1.9% to $48.13 a barrel on Wednesday morning.
Nike (NKE) - Get Report weighed on the Dow after two separate downgrades. Bank of America (BAC) - Get Report downgraded the footwear retailer to neutral from buy, noting that the company is losing market share and that future orders may have peaked. Morgan Stanley (MS) - Get Report downgraded the stock to equal weight with a $60 price target and said that growth headwinds are building.
Under Armour (UA) - Get Report slid 6% after issuing a disappointing sales outlook. The sports apparel retailer said it would only realize around a quarter of the sales expected from Sports Authority after the chain's bankruptcy and planned liquidation. Under Armour said it anticipates taking a $23 million impairment charge in its current quarter.
Vera Bradley (VRA) - Get Report fell 1% after beating first-quarter estimates but guiding for a miss in its second quarter. The handbag and accessories retailer earned 6 cents a share in its recent quarter, a penny above estimates, though revenue fell short of forecasts. Second-quarter earnings guidance between 13 cents and 15 cents a share missed forecasts of 18 cents.
Demandware (DWRE) surged more than 50% after Salesforce.com (CRM) - Get Report agreed to buy the enterprise cloud-software company for roughly $2.8 billion. Salesforce will offer $75 a share, a 56% premium to Tuesday's close. The acquisition is expected to close in the second quarter ending July.
Michael Kors (KORS) jumped 6.4% after scoring a better-than-expected fourth quarter. The accessories retailer earned 98 cents a share, 8 cents higher than a year earlier and a penny above estimates. Same-store sales increased 0.3%, higher than a forecast 0.2% increase. Michael Kors provided a softer outlook, though, with a first-quarter earnings range no higher than 74 cents a share. Analysts expected earnings of 93 cents a share.
Alibaba (BABA) - Get Report fell nearly 3% after largest shareholder SoftBank said it planned to sell at least $7.9 billion of its stake. SoftBank's new stake will amount to around 28%, down from a previously owned position in Alibaba of roughly 32%.