12:15 PM EDT
It is all about trade so far on Wall Street today, and specifically our escalating trade war with China. This dispute, raging for months with that nation took an ominous turn last week, when the President announced that he would be tacking on a 10% tariff on $300 billion in goods from China. Stocks tumbled late last week in response.
Now, this morning and early afternoon, the selling has picked up new momentum, and as the lunch hour begins, the stock market is near its session lows, with the Dow Jones Industrial Average now down 600 points and the tech-laden NASDAQ is off 243 points.
What is sending investors to the exits are not only the tariffs, but indications that China's President is pushing to retaliate, by cutting the value of his nation's currency, a maneuver designed to make that nation's goods more attractive on the markets and thus blunt the impact on the U.S. tariff increases.
So, stock markets are plunging worldwide, with earlier losses in Asia followed by retreats in Europe and now stateside. Also off are oil prices and Treasury note yields. In short, it is a global selloff of major proportions at this juncture.
– 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
First, last Wednesday, it was disappointment that the Federal Reserve did not take a more aggressive stance on monetary policy that brought out the sellers. On point, while the Fed concluded its two-day FOMC meeting with a 25-basis point cut in the federal funds rate target, it took a seemingly wait-and-see approach regarding future rate reductions. The bulls had been hoping for a more pro-active rate stance and policy statement. So, the Dow Jones Industrial Average shed 334 points. Then, on Thursday, after some aggressive buying in the morning, the President said he was planning new tariffs on China in addition to the ones earlier imposed.
His message, with the new tariffs set to take place on September 1st, would upset traders, and reverse what had been a more than 300-point rebound earlier in the day in the Dow and a formidable gain of over 100 points in the tech-driven NASDAQ, into closing losses of 281 points and 64 points, respectively. Then, on Friday, the government would report an in-line rise of 164,000 in July non-farm payrolls. That gain (which compared with a forecast of 166,000 new jobs) plus a flat 3.7% jobless rate, while it did not shake up equity investors, did leave open the question of just what the Fed would now be planning.
Uncertainty of this sort never sits well with traders. Thus, with lingering questions about the nation's economy, the Federal Reserve, and trade policies, the stock market, already near record highs and still somewhat overbought on a short-term basis, fell back some more, with the Dow falling an additional 160 points in the first few minutes of trading. The NASDAQ would falter by 80 points in that same brief span. The jobs report and the Fed notwithstanding, the big issue remained trade. The latest wrinkle in our relationship with China was somewhat surprising given that talks between the two nations had seemed to be progressing.
Meanwhile, after that early selloff, the market would stumble further, pushing down to a Dow loss of more than 330 points as we passed the 90-minute mark of trading. The setback in the NASDAQ was even greater on a percentage point, with that index falling to a morning-worst drop of 157 points. Then, there would be a modicum of buying as we hit the noon hour with the Dow's loss easing to fewer than 170 points as the afternoon got under way. That respite would be brief at that time, and the losses in the Dow would swell to more than 250 points again for a time, before another round of late buying would ensue.
The late buying then would take the blue chip composite's loss to under 150 points for a time, before more selling would take hold as investors sought to position themselves ahead of the weekend. In all, this would wind up being the S&P 500 Index's fifth straight loss and the worst week for several core indexes in 2019 to date. Also stirring the pot for the bears was the fact that China's foreign ministry reportedly said that the United States should take some responsibility for the latest flare up. Thus, as a long week ended, the stock market was in some flux, but not likely in any real trouble.
Indeed, we would again see buying as the final minutes ticked down, with the Dow's loss again narrowing, this time even more aggressively, with that composite's deficit almost disappearing in the last half hour, before some final selling left the index down 98 points (or .4%). The NASDAQ did not do as well, losing 107 points (1.3%), while the S&P 500 shed 21 points (0.7%). After this difficult week, and a trio of key economic releases (consumer confidence, manufacturing, and employment), the new week will see less economic action, with just the ISM non-manufacturing index (out today) and the Producer Price Index (on Friday).
As to this new week, and after a turbulent end to the last five-day span, we see that stocks were off sharply in Asia overnight, while in Europe, the major bourses are plunging amid growing U.S-China trade war fears. Also, oil prices, which rebounded on Friday are now lower, and Treasury note yields, off again late last week, are tumbling on the trade escalation concerns. All of this adds up to a likely dramatically lower opening on Wall Street later this morning on fears about the potential for a full-blown trade war with China.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
