Stock market under pressure as U.S.-China trade spat intensifies
U.S. stocks remained lower in midday trading on Friday after President Donald Trump approved tariffs on about $50 billion of Chinese goods, marking the latest escalation in the trade spat between the two countries.
The day’s losses were concentrated in the Dow Jones Industrial Average, which has outsize exposure to the kind of multinationals that are the most correlated to trade issues. While the S&P 500 turned lower for the week, the Nasdaq remains near the record it closed at on Thursday.
How are markets performing?
The Dow Jones Industrial Average DJIA, -0.83% fell 0.9%, or 220 points, to 24,955. The S&P 500 SPX, -0.31% lost 11 points to 2,771, a decline of 0.4%. The Nasdaq Composite Index COMP, -0.21% lost 29 points to 7,231, a decline of 0.4%.
What is driving the markets?
Trump on Friday announced tariffs on $50 billion worth of Chinese imports. Beijing has said that it intends to assess tariffs on a corresponding amount of U.S. goods, while Trump said the U.S. would pursue more tariffs if China retaliates. Subsequently, Trump said there was no trade war with China.
Trade tensions have been a major driver of market action over the past several months, though there has been more rhetoric than concrete actions thus far, and the issue hasn’t been enough to derail the general move higher. All three indexes are solidly higher for June thus far — with gains ranging between 2.5% to nearly 4% — and both the Dow and S&P 500 a few percentage points away from joining the Nasdaq at record levels.
Read: Stock-market investors see China tariffs as a ‘buzzkill’
Separately, U.S. traders largely ignored the latest policy meeting by the Bank of Japan. The central bank stuck to its easing policy, keeping short-term interest rate at minus 0.1% and its target for the yield on 10-year government bonds at around 0%. The decision comes just a day after the European Central Bank said it plans to ends its quantitative easing program in December, but will keep rates at record lows at least until next summer.
What are strategists saying?
“The trade issue has escalated into something bigger. It isn’t just rhetoric anymore; Trump wants to get these tariffs into place and it looks like it is going to happen. Once again the question is what retaliation we could see from other countries, and whether this becomes a full trade war, which would be really bad,” said Michael Mullaney, director of global market research at Boston Partners.
“Historically, tariffs slow down trade volumes, increase costs, and hit margins. It’s a no-win situation across the board, and it could result in a significant downdraft on GDP from a global basis, depending on how severe it becomes. Given how strong earnings projections are, it would be extremely unusual for this to be a down year in stocks, but a trade war could do it,” he said.
What’s on the economic calendar?
The Empire State manufacturing survey rose 4.9 points in June to a reading of 25, the highest reading since October. Separately, manufacturing production declined 0.7% in May, while capacity utilization dropped to 77.9% from 78.1% in the previous month.
The University of Michigan’s gauge of consumer sentiment rose to 99.3 in June.
In Federal Reserve speakers, Dallas Fed President Rob Kaplan will appear in a moderated discussion at a Fort Worth Chamber of Commerce lunch at 1:30 p.m. Eastern.
Energy-related stocks were in focus as crude-oil prices fell, dropping on expectations that the Organization of the Petroleum Exporting Countries and its allies will agree next week to boost output. The Energy Select Sector SPDR ETF XLE, -1.99% sank 2.1%. Among major movers, Exxon Mobil Corp. XOM, -1.48% fell 1.3% while Occidental Petroleum Corp. OXY, -1.49% was off 1.4%.
Adobe Systems Inc. ADBE, -2.13% lost 2.7% a day after reporting its quarterly results.
Teva Pharmaceutical Industries Ltd. TEVA, -0.63% dipped 0.5% after the drugmaker said it would discontinue the phase 3 trial of its treatment for chronic cluster headaches.
Qualcomm Inc. QCOM, +0.59% extended its cash tender offer for NXP Semiconductor N.V.’s NXPI, +0.79% outstanding shares. This is at least the 25th time that Qualcomm has done so over the past 16 months. Shares of Qualcomm fell 0.1% while NXP was up 0.5%.
Etsy Inc. ETSY, +3.60% rose 3.2%, extending a massive surge in Thursday’s session that took it to record levels. The gain came after it raised its revenue outlook and fee structure. The stock has jumped more than 30% this week.
On the upside, defensive sectors were higher on the day, bucking the negative tone of the overall market. Consumer staples rose 0.7% while real estate was up 0.5%. Such sectors are seen as safer in periods of time of economic uncertainty, as the growth they offer tends to be lower than the overall economy, but more stable.
What are other markets doing?
Asian markets closed mixed, with Chinese SHCOMP, -0.73% and Hong Kong HSI, -0.43% stocks in the red as investors there mulled the increased risks of a trade war.
Stocks in Europe were mixed, as the euro EURUSD, +0.3112% rebounded from its selloff on Thursday.
The ICE U.S. Dollar Index DXY, -0.09% was down 0.1% at 94.723.
Oil prices CLN8, -3.00% and gold GCQ8, -2.21% were both lower.
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