Dow doesn’t let early loss get in way of big re­bound

USA TODAY US Edition - - MONEY - Adam Shell Con­tribut­ing: Kevin McCoy

The Dow on Wed­nes­day re­bounded from a more than 500-point plunge to close 231 points higher on an­other rocky trad­ing day.

Wall Street bet that tar­iff threats and tough talk on trade from China and the Trump ad­min­is­tra­tion was likely a ne­go­ti­at­ing tac­tic and that the sides would even­tu­ally reach a deal to avoid a trade war.

The Dow Jones in­dus­trial av­er­age, down 510 points at its low, fin­ished the day up 230.94 points, or nearly 1%, at 24,264. The wild price swings came after China struck back against the U.S. with threats to levy tar­iffs on more than 100 Amer­i­can­made goods rang­ing from au­tos to air­planes. Traders’ ini­tial take­away was that it sig­naled an es­ca­la­tion in the trade fight be­tween the world’s two big­gest economies. But the stock mar­ket’s abil­ity to mount a re­bound was due in part to in­vestors’ bet that nei­ther coun­try wants a full-out trade war de­spite the tit-for­tat tar­iff threats.

“I think the mar­ket is be­gin­ning to un­der­stand and re­mem­ber that Trump’s bark is much big­ger than his bite,” says Lind­sey Bell, in­vest­ment strate­gist at CFRA, a Wall Street re­search firm. “The trade im­pli­ca­tions be­tween the U.S. and China are far from com­plete. In­vestors are hope­ful that the fi­nal trade agree­ment will be much more le­nient than what has been dis­cussed in the last 12 hours.”

China on Wed­nes­day tar­geted 106 U.S. goods for im­port tar­iffs — in­clud- ing im­por­tant agri­cul­ture ex­ports such as soy­beans — after the Trump ad­min­is­tra­tion re­leased a list of 1,300 cat­e­gories of Chi­nese goods the U.S. plans to im­pose tar­iffs on. Both coun­tries are tar­get­ing $500 bil­lion in goods.

In­vestors were ag­gres­sively sell­ing stocks such as air­plane maker Boe­ing and heavy-equip­ment maker Cater­pil­lar. These large, global U.S. com­pa­nies do a lot of busi­ness in China and over­seas, which makes their sales and prof­its vul­ner­a­ble if the two coun­tries can’t work out a deal be­fore the threat­ened tar­iffs, which are still un­der re­view, go into ef­fect. Boe­ing (BA) closed 1% lower, after an early drop of more than 6%. Cater­pil­lar (CAT) erased a 5% drop to fin­ish 0.1% higher.

Paul Schatz, pres­i­dent of Her­itage Cap­i­tal, a mon­ey­man­age­ment firm in Wood­bridge, Conn., said the strong fin­ish to the day for stocks would be viewed pos­i­tively.

The big worry on Wall Street is that cor­po­rate prof­its and sales will be hurt if trade re­stric­tions are put in place, which would be neg­a­tive for stock prices. An­a­lysts ex­pect strong re­sults from cor­po­rate Amer­ica when com­pa­nies start re­port­ing quar­terly re­sults next week. Profit growth of more than 18% is ex­pected for com­pa­nies in the Stan­dard & Poor’s 500 stock in­dex, up from a fore­cast of around 12% at the start of the year, ac­cord­ing to earn­ings tracker Thom­son Reuters.

Most in­vestors agree that tar­iffs are bad for busi­ness and the econ­omy.

“Tar­iffs and trade wars are just plain bad,” Schatz says. “I don’t care what the pres­i­dent tweets, no one wins.”

“I think the mar­ket is be­gin­ning to un­der­stand and re­mem­ber that (Pres­i­dent) Trump’s bark is much big­ger than his bite.” Lind­sey Bell In­vest­ment strate­gist at CFRA, a Wall Street re­search firm

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