S&P 500 posts its worst week of 2019 as trade tensions flare
Investors rattled by President Donald Trump’s latest escalation in his trade war with China drove another round of selling on Wall Street Friday.
The latest losses marked the fifth straight drop for the S&P 500 and the worst week of the year for the market just seven days after the benchmark index hit an all-time high.
The selling picked up a day after Trump shocked markets by promising 10% tariffs on all the Chinese imports that haven’t already been hit with tariffs of 25%. China struck back Friday, saying it will 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 gold and government bonds. The heightened tensions have also raised Wall Street’s expectations that the Federal Reserve will be forced to 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 dropped 98.41 points, or 0.4%, to 26,485.01. The average had briefly fallen by 334 points.
The Nasdaq composite, which is heavily weighted with technology stocks, lost 107.05 points, or 1.3%, to 8,004.07. Smaller company stocks also fell sharply. The Russell 2000 index gave up 17.11 points, or 1.1%, to 1,533.66.
Despite the weekly loss, 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%.
The government released its monthly jobs report on Friday, and it’s usually a major, market-moving event. But it hewed close to economists’ expectations, showing a slowdown in hiring last month, and analysts said it was overshadowed by worries about trade and what the Fed could do about it.
The Fed has already cut interest rates once, doing so on Wednesday for the first time in more than a decade. Chairman Jerome Powell cited “trade policy uncertainty” as a major reason for it in a press conference following the announcement. 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.
Traders see low rates as steroids for stocks and other risky investments because they make bonds less attractive in comparison. 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 low following years of nearly zero interest rates to get the economy going. The federal funds rate sits at a range of 2% to 2.25%, compared with the 5.25% perch it sat at before the Great Recession.
The latest round of announced tariffs, which would go into effect Sept. 1, more directly affect U.S. consumers shopping at Wal-Mart 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.
Benchmark 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, gained $1.39 to close at $61.89 a barrel.
In other energy futures trading, wholesale gasoline rose 3 cents to $1.78 per gallon. Heating oil climbed 4 cents to $1.89 per gallon. Natural gas fell 8 cents to $2.12 per 1,000 cubic feet.