Stocks on Wall Street fell Tuesday for the first time in six days after the recent upward momentum gave way to lingering concerns about the U.S.-China trade war.
Defense contractors suffered steep declines and technology stocks gave up most of their early gains, taking the steam out of a morning rally. The Dow Jones industrial average rose as much as 186 points just after trading began, but it closed with a loss of 14 points.
The market had rallied for five straight days since the Federal Reserve signaled it is open to cutting interest rates if needed to stabilize the U.S. economy rattled by trade disputes. The gains had erased much of the Standard & Poor’s 500 index’s 6.6% decline in May. But on Tuesday, concerns that the U.S. trade spat with China could be prolonged and hurt growth in the world’s two biggest economies dimmed investor enthusiasm.
Katie Nixon, chief investment officer at Northern Trust Wealth Management, said that there is no clear resolution in sight to the trade war and that investors will have to get accustomed to uncertainty hanging over the market.
“The market’s going to be really sensitive to trade news,” she said. “This is going to be very hard to resolve neatly and quickly.”
President Trump has said he plans to meet with Chinese President Xi Jinping at the Group of 20 summit this month in Japan. But Trump reiterated Tuesday that if the two can’t reach an agreement on trade, he’ll proceed with tariffs on $300 billion worth of goods from China that aren’t already subject to import taxes.
Defense companies were the biggest decliners in the S&P 500. The market on Monday welcomed news of a mega-merger between Raytheon and United Technologies, but the stocks dropped sharply Tuesday. Raytheon lost 5.1% and United Technologies shed 4%. L3 Technologies fell 4.4% and Harris Corp. dropped 4.3%. On Monday, Trump expressed some reservations about the Raytheon-United Technologies tie-up.
Technology stocks also gave up some early gains. Adobe fell 1.6% and Advanced Micro Devices fell 2.5%. The tech sector is still up nearly 24% this year, the best performer among the 11 sectors in the S&P 500.
Consumer-focused stocks and internet companies were among the gainers. Facebook rose 1.9% and Verizon gained 1.2%. Walgreens rose 1.1% and Dollar Tree rose 2.7%.
The S&P 500 slipped 1.01 points, or less than 0.1%, to 2,885.72. The Dow fell 14.17 points, or 0.1%, to 26,048.51. The Nasdaq composite slipped 0.60 of a point to 7,822.57. The Russell 2000 index of small companies fell 4.45 points, or 0.3%, to 1,519.11.
John Lynch, chief investment strategist at LPL Research, said in a note to clients that a trade deal with China “is unlikely until more economic pain is incurred by both China and the United States.” That pain will eventually push the two sides to strike a deal, he said.
Lynch and Nixon said that the longer the trade war goes on and tariffs are in place against Chinese goods, the more likely the Fed is to cut interest rates. The futures market is indicating that investors expect the Fed to cut its benchmark interest rate as early as its July policy meeting.
Nixon noted that the bond market has been sending the Fed a clear message that the central bank is behind the curve on lowering rates. The volatile stock market, weak economic data and higher bond prices are all potential catalysts for a rate change.
“The tea leaves are all there for them to read, if they want to read them,” she said.
The yield on the 10-year Treasury has dropped from about 2.50% in early May to 2.14% Tuesday.
Meanwhile, one of the market’s recent highfliers had a rare bad day.
Beyond Meat dived 25% after J.P. Morgan’s Ken Goldman and James Allen downgraded the stock to “neutral.” The downgrade follows a surge in the stock price from $25 to $167 since the maker of plant-based meat alternatives started trading publicly on May 2. In a note to clients Tuesday, Goldman and Allen said the downgrade was “purely a valuation call.”
Grubhub jumped 8.3% after the online food service company got some relief from competitive pressures. Amazon is closing its U.S. restaurant delivery service, a 4-year-old business that failed to take off. The sector is highly competitive and includes Uber Eats and DoorDash.
Energy futures finished mostly higher Tuesday. Benchmark U.S. crude rose 1 cent to $53.27 a barrel. Brent crude oil, the international standard, was unchanged at $62.29 a barrel. Wholesale gasoline rose 1.7% to $1.76 a gallon. Heating oil rose 0.8% to $1.82 a gallon. Natural gas rose 1.7% to $2.40 per 1,000 cubic feet.
Gold rose 0.1% to $1,331.20 an ounce. Silver rose 0.7% to $14.74 an ounce. Copper rose 0.4% to $2.672 a pound.