U.S. stocks closed lower Monday, with the S&P 500 and the Dow snapping multiday win streaks, as President Donald Trump prepared to announce additional tariffs on Chinese imports while China hinted at a new round of retaliation.
How did major benchmarks fare?
The S&P 500 SPX, >-0.35% was off 16.18 points, or 0.6%, to 2,888.80, with technology and consumer-discretionary sectors among the biggest losers. The decline represented the first loss for the broad-market benchmark of the past seven sessions.
The Dow Jones Industrial AverageSee Also × DJIA, >-0.68% fell 92.55 points, or 0.4%, to 26,062.12, marking its first daily drop of the past five sessions, and the Nasdaq Composite Index COMP, >+0.08% fell 114.25 points, or 1.4%, to 7,895.79, marking its worst daily decline since July 27, according to FactSet data.
What factors drove the market?
Trade tensions have received renewed attention as the relationship between the U.S. and China showed signs of deteriorating with Trump planning to announce more tariffs on additional $200 billion of Chinese good late Monday.
Over the weekend, China said it may decline a White House offer for trade talks if Trump carries out the tariff threat. “China is not going to negotiate with a gun pointed to its head,” a senior Chinese official told the Journal.
Technology stocks—including names like Amazon.com Inc., which is classified as a consumer-discretionary firm—have been highly correlated to the trade issue, with investors worrying about the impact it could have on their supply chains and global demand prospects.
The Chinese products targeted by the U.S. government for higher tariffs include many for which the country has a dominant market share, according to economists at Capital Economics.
Broadly speaking, investors have tried to shrug off the trade issue, focusing instead on strong corporate profits and economic data. But there is still a concern that the issue could escalate and have a pronounced impact on global economic growth.
In the latest economic data, the New York Fed’s Empire State index fell 7 points to 19 in September.
What did analysts say?
“Indeed, China is the source of more than half of U.S. imports of the products on the $200 billion list, so alternative suppliers will be hard to find. If the tariff rate is set at only 10%, the impact will also be largely offset by the renminbi’s 6% fall against the dollar since the middle of June,” said Mark Williams, chief Asia economist at Capital Economics, in a report. “The damage from the latest escalation of the trade conflict on China’s economy will be small—much less than 0.5% of GDP, even if policy is not loosened further.”
“Trade is back at the forefront of the news, and tech is among the most impacted sectors” to this issue, said Chris Larkin, senior vice president of trading product at E-Trade Financial Corp. ETFC, >-1.11%
“Not only have tech stocks have a really nice run in 2018—meaning the prices are a bit rich and it’s natural to see a giveback—but they’re international stocks with a lot of international exposure. A good chunk of their profits come from overseas markets, and that’s being impacted with the tariff talk.”
What stocks were in focus?
All five of the so-called FAANG stocks were lower, with
Netflix Inc. NFLX, >+2.33% falling 3.9%.
Apple Inc. AAPL, >+1.44% fell 2.7% while
Facebook Inc. FB, >+1.52% lost 1.1% and Google-parent
DowDuPont Inc. DWDP, >-2.14% shares rose 0.4% following an announcement that Chief Executive Edward Breen will assume the top executive position at the specialty-products company that will be created next year as part of the conglomerate’s yearslong plan to split into three entities.
Cellectar Biosciences Inc. CLRB, >-0.74% gained 1.4% after it won a rare pediatric designation for cancer treatment from the FDA.
Canopy Growth CGC, >+5.46% shares rose 2.8%. The company said its Tweed Farms Inc. site has received license amendments that approve remaining greenhouse space, expanding the company’s licensed footprint to about 3.2 million square feet.
Oracle Corp. ORCL, >+0.27% shares edged down 0.1%. The enterprise-software giant is scheduled to report its quarterly results after the market closes.
What were other markets doing?
European markets ended mixed and Asian stocks fell sharply, pressured by the trade uncertainty and by a powerful typhoon. The region was extending its recent weakness. Shares in Shenzhen have slumped nearly 30% so far this year, while Hong Kong’s Hang Seng Index is down almost 20% from a recent peak.
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