Stock market has its worst week of 2019 as U.S.-China trade tensions flare
Investors rattled by President Trump’s latest escalation in his trade war with China drove another round of selling on Wall Street on Friday.
The benchmark Standard & Poor’s 500 index had its fifth straight daily drop, wrapping up its worst week of the year, just a week days after its latest all-time high.
The selling picked up the day after Trump shocked markets by promising 10% tariffs on the Chinese imports that haven’t already been hit with tariffs of 25%. China struck back Friday, saying it would take “necessary countermeasures” if Trump follows through on the new tariffs, which would kick in next month.
The re-escalation in tensions between the world’s largest economies has raised worries about a global recession. Investors have responded by selling stocks and buying traditionally safer assets such as gold and government bonds. The heightened tensions have also raised Wall Street’s expectations that the Federal Reserve will cut interest rates several times to cushion the trade war’s blow.
The S&P 500 fell 21.51 points, or 0.7%, to 2,932.05. The Dow Jones industrial average fell 98.41 points, or 0.4%, to 26,485.01.
The Nasdaq composite, which is heavily weighted with technology stocks, slid 107.05 points, or 1.3%, to 8,004.07. Smaller-company stocks also fell sharply. The Russell 2000 index declined 17.11 points, or 1.1%, to 1,533.66.
Still, the major indexes are all up solidly this year, led by the Nasdaq’s 20.6% gain. The S&P 500 is up nearly 17%.
Technology companies accounted for much of Friday’s sell-off. Communications services, consumer discretionary and energy firms also bore a big share of the losses. Investors shifted money into bonds and stocks traditionally seen as less risky: real estate and utilities.
The government’s monthly jobs report hewed close to economists’ expectations, showing a slowdown in hiring last month. But analysts said it was overshadowed by worries about trade and what the Fed could do about it.
The Fed cut interest rates Wednesday, with Chairman Jerome H. Powell citing “trade policy uncertainty” as a major reason for the move. But he stopped short of promising a long cycle of rate cuts, which left investors disappointed and Trump tweeting that “as usual, Powell let us down.”
The next day came Trump’s tweet on tariffs, and investors now say there’s a 98% probability that the Fed will cut rates again at its next meeting in September. That’s up from a roughly 50% probability Wednesday afternoon.
“We just ratcheted up the trade conflict, and now that makes the Fed much more likely to cut,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab.
Traders see low interest rates as steroids for stocks and other risky investments because low rates make bonds less attractive. By making borrowing cheaper, low rates can also help goose the economy.
But the Fed has less ammunition than in the past to cut rates because they’re already historically low. The federal funds rate sits at a range of 2% to 2.25%, down from 5.25% before the Great Recession.
Rate cuts alone also may not fully counteract the possible negative repercussions of the trade war.
Trade uncertainty has been weighing on business investment spending, and this latest escalation only adds to it. “It will be important to monitor business sentiment surveys to see whether there is a significant impact on the demand for workers — if businesses stop hiring, this would greatly increase the risk of a recession,” UBS Global Wealth Management’s chief investment officer, Mark Haefele, said in a report.
The latest round of announced tariffs, which would go into effect Sept. 1, more directly affect U.S. consumers shopping at Walmart or Target. If Trump ramps them up to 25% and keeps them there for four to six months, Morgan Stanley economists say they would expect a recession within nine months.
The concerns about the trade war and Fed have taken focus away from the better-than-expected earnings reporting season. Roughly three-quarters of S&P 500 companies have updated investors on how much profit they made in April through June, and earnings for S&P 500 companies are on pace for a drop of 1% from a year earlier. Although weak, that’s better than the nearly 3% drop that analysts had forecast, according to FactSet.
Treasury yields were mixed. The 10-year yield fell to 1.85% from 1.89% — near its lowest point since Trump’s election in 2016. The two-year yield held steady at 1.71%.
Markets abroad sold off more heavily in their first opportunity to trade following Trump’s tariff tweet. Markets in France and Germany dropped more than 3%, and major indexes in Japan and Hong Kong fell more than 2%.
U.S. crude oil rose $1.71, or 3.2%, to settle at $55.66 a barrel, recovering about a third of its plunge from the day before. Brent crude, the international standard, climbed $1.39 to close at $61.89 a barrel.
Gold rose $27.70 to $1,445.60 an ounce. Silver rose 10 cents to $16.22 an ounce. Copper fell 9 cents to $2.57 a pound.
Wholesale gasoline rose 3 cents to $1.78 a gallon. Heating oil rose 4 cents to $1.89 a gallon. Natural gas fell 8 cents to $2.12 per 1,000 cubic feet.
The dollar fell to 106.55 Japanese yen from 107.33 yen. The euro strengthened to $1.1113 from $1.1082.
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