Trade fears hit U.S. stocks
Impact has been worse for global equities
U.S. stocks fell on Tuesday as a sharp escalation in the trade dispute between the United States and China rattled markets and put the Dow Jones Industrial Average back in negative territory for the year.
President Donald Trump threatened to impose a 10 per cent tariff on another US$200 billion of Chinese goods, and Beijing warned it would retaliate.
Trump said his move followed China’s decision to raise tariffs on US$50 billion in U.S. goods, which came after the White House announced similar tariffs on Chinese goods on Friday.
“Investors are waking up to the idea that all the rhetoric on trade could be more than just a negotiating tactic,” said Emily Roland, head of capital markets research at John Hancock Investments in Boston.
The Dow Jones Industrial Average fell 287.26 points, or 1.15 per cent, to 24,700.21, the S&P 500 lost 11.16 points, or 0.40 per cent, to 2,762.59 and the Nasdaq Composite dropped 21.44 points, or 0.28 per cent, to 7,725.59.
The three major indexes pared losses from earlier in the session.
The Dow briefly dropped below its 100-day moving average but rebounded, though the index ended the session below its 50-day moving average.
Given the escalating rhetoric on trade, some investors said the slide in U.S. stocks was relatively small.
“The U.S. market has acted much stronger than the global equity markets,” said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut. “It’s a sedate reaction.”
The CBOE Volatility Index, commonly known as Wall Street’s fear gauge, hit nearly a three-week high of 14.68 points, before easing to 13.35.
In Toronto, the S&P/ TSX composite index closed down 67.10 points at 16,316.53, led by losses in the base metal sector.
The Canadian dollar averaged 75.32 cents US, down 0.39 of a U.S. cent, as it continues to face the twin pressures of rising U.S. rates and trade fears, especially related to NAFTA.
The escalating tension on trade sent European and Asian markets lower as well, while growth-linked commodities like copper and crude fell.
“There’s definitely some element of pressure here as we go through the trade war fears, as well as the rhetoric for tariffs,” said Sid Mokhtari, executive director of institutional equity research at CIBC.
The dip in commodities included the August crude contract closing down 79 cents at US$64.90 per barrel and the July copper contract ending down six cents at US$3.05 a pound.
The retreat is a symptom of recent escalations but the fundamental story of global growth and reflation are still true, said Mokhtari.
“It’s a confluence of trade fears and trade assumptions, as well as the Fed decision that happened last week,” said Mokhtari.
He said the Canadian dollar could keep falling to somewhere around 73 cents as pressure persists.
“We still see followthrough weakness for the Cdollar.”