After The Close
The markets opened lower today, as fears about a potential trade war escalation with China rose back to the surface. This was exacerbated by a U.S. Trade official signaling that tariffs on goods from China are slated to rise to 25% from 10% starting this Friday. This impacted the prices of several industrial companies and sent the indices much lower in the early portion of the session. Indeed, the Dow Jones Industrial Average fell by more than 640 points at one point, and the S&P 500 was lower by almost 70 points. The other composites also traded much lower. Overall, the indices moved aggressively down throughout the course of the session, though a small bounce back in the final portion of trading occurred. Overall, the Dow closed 473 points lower, the S&P 500 fell by 48 points, and the NASDAQ was off 160 points.
Additionally, market breadth was rather negative, as decliners outpaced advancers by a 4.7-to-1.0 ratio. A ratio this low suggests that there was little refuge in the selling. Utilities stocks were among the best performers on the day, aided by reduced bond yields. Still, they only did well on a relative basis. On the other hand, technology and industrial equities were among the weakest on the day, as they are most likely to be impacted by a broader trade war.
In commodity news, oil prices fell considerably as fears emerged about a global slowdown caused by the trade dispute. Meanwhile, U.S. Treasury bond yields were lower across the board today, as a flight to the safe-haven assets occurred. The VIX Volatility Index was much higher, expanding nearly 26%, as demand for options protection rose.
Looking ahead, tomorrow will have a slew of economic data. This includes the Energy Information Administration’s status report on oil inventories, and the Mortgage Bankers index. Too, earnings season will continue, as Dow-30 component Disney (DIS – Free Disney Stock Report) is slated to report after the closing bell tomorrow. Still, we think that any potential outcomes from trade talks with China will lead the market tomorrow.
- John E. Seibert III
At the time of this article’s writing, the author held positions in the following: Walt Disney Company (DIS).
2:30 PM EDT
Just one day after the Dow Jones Industrial Average fell significantly, the blue chip index is plunging anew today. To review, the DJIA tumbled 471 points at the start of yesterday's trading, before reversing course and making up most of that ground by the close, and ending the day 66 points lower.
On point, after intensifying trade fears with China brought the bulls down early yesterday, an escalation of the trade rhetoric last night and this morning caused an even larger surge in selling today.
In all, as we enter the final two hours of trading, the Dow is off 550 points; the S&P 500 is lower by 57 points; and the NASDAQ is in the red to the tune of 183 points. Also all 10 of the major market sectors are lower as are all 30 of the Dow issues.
Specifically, the President has threatened to impose a 25% tariff on $200 billion in goods produced in China unless that nation is willing to strike a trade deal with the United States. He also said there could be a 25% charge levied on $325 billion in additional goods.
So stocks are selling off in a big way. If the market closes at these levels it would be the worst day for the bulls since early January, with the Dow now moving back below its 50-day moving average.
- Harvey S. Katz, CFA
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
Before The Bell
Threats by the President to raise tariffs on $200 billion in goods out of China from 10% to 25% if that nation does not act in good faith in bringing about a deal on trade pushed the stock market down sharply at the open yesterday morning. In fact, within minutes after the trading day began, the Dow Jones Industrial Average was down by 470 points. However, that would prove to be the low point for the week's initial session, and as the next hour or two passed, the stock market would stage a sizable comeback.
All told, as we moved into the afternoon, the rally would proceed further and the morning's losses would be pared by more than 50%. In sum, the Dow's deficit would ease to fewer than 200 points. The S&P 500 and the NASDAQ also would reduce their deficits. Helping the Street to rebound was a sense that this was just a blip in the overall trade detente and that it was still more likely that a trade deal would get done than a long-term impasse would be the end. Some pundits, in fact, speculated that once a deal is forthcoming that the market would make news highs.
On the other hand, should the two sides remain far apart and the President tack on the tariff increases, it is likely that the market would sell off in a much more serious manner. Meanwhile, most signs point to a resumption of the rally rather soon, with last Friday's blockbuster jobs increase and near 50-year low in the unemployment rate at 3.6% getting investors fully on board. So, this early week selloff could well be just a brief interlude from a strong rally that likely will remain in place.
The comeback then would intensify as the afternoon moved along, with the Dow's loss getting under 200 points and then in the final hour moving below 100 points. In fact, at one point late in the day, it looked as though the averages would go positive. But that proved too much to ask and the day would wind up in the red, but just grudgingly so. In all, the Dow would shed but 66 points; the S&P 500 would lose 13 points; and the NASDAQ would fall 41 points. Given where things were early in the day, the close was a triumph of sorts.
Looking ahead to a new day, we see that after yesterday's volatile session that the major indexes were moving in a mixed pattern in overnight trading in Asia. As for Europe, the leading bourses are now trading in down a little. In other markets, oil prices are softening and Treasury note yields, off slightly in dealings yesterday, to close at 2.50% on the 10-year vehicle, are now easing further due to U.S.-China trade uncertainty. Finally, the early action in the futures is weaker on trade worries.
– Harvey S. Katz, CFA
