Worsening U.S.-China trade tensions rattle financial markets
A broad sell-off slammed stocks on Wall Street on Tuesday as the United States and China moved closer to an escalation of their already costly trade war.
The benchmark Standard & Poor’s 500 index slumped 1.7%. The Dow Jones industrial average tumbled more than 470 points.
The United States was set to impose higher tariffs on China on Friday, the day after representatives from both nations are scheduled to resume trade talks in Washington. Trump administration officials accused China of reneging on commitments made during weeks of negotiations.
Both nations had signaled progress was being made toward a resolution in recent weeks. Buoyed by those signs, as well as a more dovish stance on interest rates by the Federal Reserve and better signs on the economy, investors had furiously bought stocks and pushed the S&P 500 and Nasdaq to all-time highs last week. All major indexes still have double-digit gains for the year.
Analysts said the market was vulnerable to any reversals in the trade talks. This week, investors have dumped shares of companies that bring in significant revenue from China, such as those in the technology and industrial sectors. Bank stocks have also taken heavy losses.
“This is a game of poker, and the U.S. is playing their hand,” said Doug Cote, chief market strategist at Voya Investment Management. “Let’s say the worst happens and they raise tariffs on Friday. Well, you’re going to get another buying opportunity.”
Every sector fell. Utilities, which normally are safe-play holdings for investors, fared better than the rest of the market. Bond prices rose as investors sought other ways to reduce risk.
The S&P 500 index slumped 48.42 points, or 1.7%, to 2,884.05. The Dow slid 473.39 points, or 1.8%, to 25,965.09; earlier in the day, it was down as much as 648 points. The Nasdaq composite, which is heavily weighted with technology stocks, sank 159.53 points, or 2%, to 7,963.76.
The Russell 2000 index of small company stocks sank 32.66 points, or 2%, to $1,582.31. Major indexes in Europe also lost ground.
The rout is the first big jolt for stocks since the turn of the year, when fear began draining out of the market and the S&P 500 started its march back to record heights.
The United States and China have raised tariffs on tens of billions of dollars’ worth of each other’s goods in their dispute over U.S. complaints about Chinese technology ambitions.
Washington has accused Beijing of reneging on its commitments and is preparing to raise import taxes on $200 billion worth of Chinese goods to 25% from 10%, and to impose tariffs on an additional $325 billion worth of imports, covering everything China ships annually to the United States.
The possibility that the trade dispute could escalate represents a marked shift from just a few weeks ago, when U.S.-China talks appeared to be on track for an agreement.
The big rise in stocks since the beginning of the year partly reflects complacence among investors, said Mark Hackett, chief of investment research for Nationwide Investment Management.
“We’ve basically flipped from being too pessimistic to perhaps being too optimistic,” he said.
The U.S.-China trade dispute had been hanging over the market even as the S&P 500 made its run to a record this year. But investors had been willing to push stocks higher despite it because they largely assumed a deal would eventually get done. That showed in share prices of U.S. companies that get big portions of their sales from China, as those companies had done better than the rest of the market, according to analysts at Jefferies.
Trump’s threat of additional tariffs has caused investors to reassess those expectations. One measure of fear in the market, which tracks how much traders are paying to buy protection from price swings in the S&P 500, had its biggest jump Tuesday in nearly seven months. It remains low by historical standards, though. Earlier this year, it dropped by more than half since the end of 2018.
It’s still unclear whether the brinksmanship tactics from the Trump administration will help or hurt the prospects of a U.S.-China deal getting done quickly, something that investors want.
In extended trading Tuesday, Electronic Arts jumped as much as 10% after it reported that the launch of its “Apex Legends” game helped its fourth-quarter results zoom past analysts’ estimates.
Energy futures closed mostly lower. Benchmark U.S. crude fell 1.4% to settle at $61.40 a barrel. Brent crude, the international standard, fell 1.9% to $69.88 a barrel.
Wholesale gasoline fell 2.4% to $1.95 a gallon. Heating oil fell 1.5% to $2.04 a gallon. Natural gas rose 0.5% to $2.54 per 1,000 cubic feet.
Gold rose 0.1% to $1,285.60 an ounce. Silver was little changed at $14.93 an ounce. Copper fell 1.6% to $2.79 a pound.
The dollar fell to 110.27 yen from 111.90 yen. The euro weakened to $1.1183 from $1.1203.
Bloomberg was used in compiling this report.
