Stocks dive on trade war fears
Big losses for a second day push U.S. stocks to their worst week in two years. Global markets also sink.
Stocks around the world plunged Friday as investors feared that a trade conflict between the U.S. and China, the biggest economies in the world, would escalate. A second day of big losses pushed U.S. stocks to their worst week in two years.
The losses were widespread. Technology companies were pummeled. The sector has made enormous gains over the last year, but since tech firms do so much business outside the U.S., investors see them as particularly vulnerable to the effects of a trade dispute.
Stocks sagged at the start of this month after President Trump announced tariffs on aluminum and steel, but they quickly recovered as the administration said the tariffs wouldn’t be as severe as they first looked. Stocks’ losses this week were worse, and investors are hoping for hints that the sanctions on China are more of a negotiating tactic.
The Standard & Poor’s 500 index skidded 6% this week, its worst since January 2016.
Bank stocks took steep losses as interest rates decreased. Higher interest rates help banks, and if the tariffs and counter-tariffs reduce economic growth in the U.S., the Federal Reserve is likely to raise interest rates at a slower pace.
The sanctions Trump proposed Thursday could affect as much as $60 billion in imports and are a response to allegations that Beijing steals or forces foreign companies to hand over technology.
Big U.S. companies tend to get more of their revenue from foreign customers than small companies do, and that makes them more vulnerable in a trade war.
FactSet estimates that 30.5% of revenue at big companies in the S&P 500 comes from outside the United States. For the smaller companies in the S&P 600 index, it’s just 19.5%. Smaller companies also are getting a bigger benefit from the recent cut in corporate tax rates.
“We think a lot of the areas in the market with the greatest potential for earnings improvement this year are small- and mid-cap stocks, things that have the biggest benefit from tax reform and are less subject to trade wars,” said Eric Marshall, portfolio manager at Hodges mutual funds.
Sales outside the U.S. are especially important for tech firms. Roughly $1 of every $5 in Apple’s sales came from China, Hong Kong and Taiwan in its last year. That doesn’t take into account how much manufacturing and assembly is done in Chinese factories, which could be affected if tariffs start piling up. On Friday, chip makers’ stocks fared especially badly. Micron Technology sank 8% to $54.21.
Investors kept buying bonds, sending prices up and yields down. The yield on the 10-year Treasury note slipped to 2.81% from 2.83%.
In another sign investors are nervous, gold and silver prices jumped. Gold climbed $22.50, or 1.7%, to $1,349.90 an ounce. Silver rose 20 cents, or 1.2%, to $16.58 an ounce. Copper fell 3 cents to $2.99 a pound. The dollar fell to 104.82 yen from 105.61 yen. The euro rose to $1.2367 from $1.2307.
Defense contractors including Raytheon and Lockheed Martin climbed after Trump signed a government funding bill that provides increases in military spending.
The price of U.S. crude oil climbed $1.58, or 2.5%, to $65.88 a barrel. Brent crude, the international standard, rose $1.54, or 2.2%, to $70.45 a barrel. Wholesale gasoline rose 2 cents to $2.04 a gallon. Heating oil rose 3 cents to $2.02 a gallon. Natural gas fell 3 cents to $2.59 per 1,000 cubic feet.