Es­ca­lat­ing U.S.-China trade war sends stocks plung­ing

The News-Times - - BUSINESS -

The Dow Jones In­dus­trial Av­er­age plunged more than 600 points Mon­day as in­vestors sought shel­ter from an es­ca­lat­ing trade war be­tween the U.S. and China.

The sell­ing was widespread and heavy, hand­ing the bench­mark S&P 500 in­dex its biggest loss since Jan­uary. The Dow and the S&P 500 each fell more than 2 per­cent as in­vestors sold trade-sen­si­tive shares. The sell-off ex­tended the mar­ket’s slide into a sec­ond week. The losses so far in May have now erased the mar­ket’s gains from April.

Tech­nol­ogy com­pa­nies, which do a lot of business with China, led the way lower. Chipmakers were among the biggest de­clin­ers. Ap­ple also took heavy losses, tum­bling 5.8 per­cent. Farm­ing equip­ment maker Deere drove losses in the in­dus­trial sec­tor, re­flect­ing wor­ries about the im­pact of tar­iffs on U.S. farm­ers.

The world’s two largest economies had seemed to be on track to re­solve the on­go­ing trade dis­pute that has raised prices for con­sumers and pinched cor­po­rate profit mar­gins. In­vestor con­fi­dence that the two sides were close to a res­o­lu­tion had helped push the mar­ket to its best yearly start in decades.

Those hopes are now re­placed by con­cerns that the trade war could crimp what is oth­er­wise a mostly healthy econ­omy. An­a­lysts have warned that failed trade talks and the de­te­ri­o­ra­tion in re­la­tions will put a dent in the U.S. and China’s eco­nomic prospects.

“The larger is­sue with the tar­iffs isn’t the spe­cific amounts of tar­iffs at any given time, but the un­cer­tainty that’s sur­round­ing th­ese tar­iffs and the `what’s-next?’ of an es­ca­lat­ing trade war,” said Wil­lie Del­wiche, in­vest­ment strate­gist at Baird. “That weighs on the global econ­omy and could then weigh on the U.S. econ­omy.”

The Dow dove 617.38 points, or 2.4 per­cent, to 25,324.99. Ear­lier, it was down 719 points. Ap­ple and Boe­ing were the Dow’s biggest de­clin­ers. Both com­pa­nies get a sig­nif­i­cant amount of rev­enue from China and stand to lose heav­ily if the trade war drags on. Boe­ing slid 4.9 per­cent.

The broader S&P 500 in­dex fell 69.53 points, or 2.4 per­cent, to

2,811.87. The in­dex is com­ing off its worst week since Jan­uary, though it’s still up sharply for the year. The Nas­daq, which is heav­ily weighted with tech­nol­ogy stocks, slid 269.92 points, or 3.4 per­cent, to 7,647.02, its worst drop of the year.

The Rus­sell 2000 in­dex of small com­pany stocks lost 49.99 points, or

3.2 per­cent, to 1,523.

Trade talks be­tween the U.S. and China con­cluded Fri­day with no agree­ment and with the U.S. in­creas­ing im­port tar­iffs on $200 bil­lion of Chi­nese goods to 25 per­cent from 10 per­cent. Of­fi­cials also said they were pre­par­ing to ex­pand tar­iffs to cover an­other $300 bil­lion of goods.

China on Mon­day an­nounced tar­iff in­creases on $60 bil­lion of U.S. im­ports, par­tic­u­larly farm prod­ucts like soy­beans. The price of soy­beans slid 0.8 per­cent to $8.04 a bushel. They were trading around $9 a bushel last month and are now at their low­est price since De­cem­ber 2008. The fall­ing price has put pres­sure on U.S. farm­ers.

An­a­lysts have said in­vestors should pre­pare for a more volatile stock mar­ket while the trade dis­pute deep­ens. Many are still confident that both sides will even­tu­ally reach a deal.

Ride-shar­ing com­pany Uber tum­bled an­other 10.8 per­cent on its first full day of trading fol­low­ing its rocky de­but on the stock mar­ket Fri­day. The stock had priced at $45 at its ini­tial pub­lic of­fer­ing. It closed at $37.10.

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