After The Close - Stocks closed sharply lower to end the week following news of deteriorating trade relations with China.
China unveiled plans to phase in tariffs on imported U.S. goods, with September 1st set as the day for the initial round to go into effect and another layer of tariffs planned for December 15th.
China indicated that it feels the need to respond to U.S. tariffs on its exports scheduled to go into effect in the same time frame. Soybeans, autos, and oil are a few of the goods targeted by China’s actions.
As to be expected, the stock market took the news poorly. The Dow Jones Industrial Average was off more than 160 points shortly after the opening bell.
But investors were not ready to throw in the towel on the session just yet, with a speech on tap by Federal Reserve Chair Jerome Powell at the central bank’s annual late-summer convention at Jackson Hole, Wyoming.
Mr. Powell’s words did not disappoint Wall Street, and proved sufficiently dovish on monetary policy to allow stocks to recoup most of their losses by mid-morning.
The Federal Reserve is broadly expected to lower interest rates at its policy meeting in September, and is attuned to the slower growth backdrop developing not just stateside, but around the globe.
Specifically, central bank officials are closely monitoring whether declining business investment hurts hiring. Lately, businesses have reduced capital spending, at least partly owing to uncertainties over global trade. But so far the pullback has not hurt the labor market, which supports the consumer spending that fuels economic growth.
The recovery in stock prices did not hold, though, after the White House suggested a broad disengagement with China.
China has been viewed as an attractive market for U.S. companies for many years because its enormous population provides both a cost-effective labor pool and an up-and-coming consumer market.
Today’s events seemed to show that a trade deal with China is not in sight, and that relations could worsen in the coming months. As a result, losses on Friday wiped out gains for the week.
At the closing bell, the Dow slumped 623 points; the NASDAQ sank 240 points; and the S&P 500 was down a steep 76 points.
Stocks were lower for the fourth consecutive week and finished weak toward the end of the session but, in the broader scheme, are not that far from their July highs. - Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
12:20 PM EDT - Trading is often subdued and stock market reactions are typically muted on lazy summer Fridays in August, but not today, as an already jittery Wall Street is selling off badly as we pass the noon hour in New York.
What got the ball rolling earlier this morning was an announcement by China in which that nation said it would slap on new tariffs to the tune of $75 billion on an array of U.S. goods. The tariffs would be levied in two batches, on September 1st and December 15th.
Also, the Street was unnerved after Federal Reserve Chair Jerome Powell, speaking at the policy conference in Jackson Hole WY, would not say categorically that the lead bank would be cutting interest rates at the next FOMC meeting in mid-September, though that course of action still seems probable to us.
Finally, what really set the market off were comments by the President that U.S. companies should immediately start looking for an alternative to China on the trade front. Tech stocks were especially hammered by those remarks.
Thus, as the afternoon gets under way, we see that the Dow Jones Industrial Average is off by more than 470 points and the NASDAQ is down by 180 points. – 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 - The daily tug of war between the bulls and the bears on Wall Street resumed yesterday morning, with the bulls winning initially, the bears making a mid-morning change, and the bulls coming back again as the afternoon got under way. Specifically, after gains on Monday, some late reversals on Tuesday, and a resumption of the bullish charge on Wednesday, stocks began the latest session to the upside, with the Dow Jones Industrial Average quickly jumping out to a gain of some 185 points. However, an inversion of the yield curve and comments by some Federal Reserve members shook sentiment and caused all of the indexes to turn negative.
That all would change and fairly quickly as the afternoon began, and the Dow and the S&P 500 would resume their uptick, with the blue chips rising to an advance of more than 100 points. What had set the bears into motion earlier had been comments from a pair of Fed board members, who were questioning whether or not the central bank needed to lower interest rates again when it meets next month. Fed Chair Jerome Powell, meantime, will be speaking today at the Fed's conference in Jackson Hole, Wyoming. At this time, more than 90% of the pundits expect the bank to trim another 25 basis points off of the federal funds target next month.
Our sense continues to be that such differences aside, that the Fed likely will cut the federal funds rate at the next FOMC meeting. However, with stocks again overbought and with recessionary fears not dissipating, stocks are vulnerable to short-term selloffs. But this comeback would continue well into the afternoon. As the session moved along, we would see the Dow hold up nicely, but the NASDAQ remain n the loss column, although with a much smaller deficit than earlier. Helping the market was some further strength in the retailing group, with luxury chain Nordstrom (JWN) leading the way higher.
In fact, with calendar company reports now largely in the rearview mirror, Wall Street is looking to the retail group to lift sentiment. And after a weak report last week from Macy's (M), the trend has been positive, by and large, and that has helped the market to bounce back strongly from early month selling. Meanwhile, in other news, there were some weaker manufacturing data issued and this would seem to strengthen the case for a rate cut. Also, the leading indicators were released for July and they showed a jump of 0.5% for last month following declines of 0.1% in May and June.
Still, the market could not mount a sustained charge. In fact, the Dow's advance would wily near the close, leaving that index ahead by just 50 points. The S&P 500 Index would ease to a loss of a point and a half, while the NASDAQ was down by 29 points. There was also little to choose from between gaining and losing stocks, although the basic materials issues were weak, with shares of Dow Inc. (DOW - Free Dow Stock Report) hitting a new 52-week low. The newest of blue chip components now sports a dividend yield north of 6%, an enticing payout for this rather quality issue.
Now, the final day of the week commences and all eyes will be on Jackson Hole WY to see what Mr. Powell has to say. Also, investors will be awaiting data on new home sales a little later this morning. As for the trends so far this morning, we see that stocks were higher in trading in the overnight hours across Asia. In Europe, meantime, the leading bourses are showing early gains this morning ahead of Powell's remarks. Also, Treasury note yields, which ticked higher on the 10-year note (at 1.61%) yesterday, are now 1.65% and oil prices are little changed. All of this was pointing to a fairly strong start when trading resumed, however the tide shifted when news broke that China would impose tariffs on $75 billion worth of U.S. goods. - Harvey S. Katz, CFA