Trump threats deliver ‘gut punch’ to market
Here’s what a pair of tweets on trade can do.
The Dow Jones Industrial Average dropped more than 450 points Tuesday and had its worst performance since Jan. 3. The other two top gauges of U.S. stocks, the Standard & Poor’s 500 and the Nasdaq, notched their sharpest declines since March 22.
Major U.S. stock indexes fell sharply for a second straight day after President Donald Trump threatened a huge increase in tariffs on Chinese goods in two tweets over the weekend.
Investors, who had hoped trade negotiations this week would lead to a resolution of differences between the United States and China, questioned the progress of the talks after the surprise threat of new tariffs, which could take effect Friday.
“The Trump administration’s doubling down on the China threats has been a gut punch to bulls,” said Daniel Ives, managing director of equity research at Wedbush Securities. “Investors do not want to add risk going into trade talks this week, given the shot across the bow from the administration.”
The dip came after a strong start for stocks in 2019. The longest bull market in U.S. history celebrated its 10th anniversary March 9. After its sharp, twoday decline, the Dow is still up more than 11% since the start of the year.
Tuesday, the Dow Jones Industrial Average fell 473, or 1.79%, to end at 25,965, while the broader S&P 500 index lost 48 points, or 1.65%, to finish at 2,884. The tech-heavy Nasdaq dropped almost 160 points, or 1.96%, to finish at 7,964.
The stock declines started Monday after Trump called for 25% tariffs on $200 billion of Chinese imports previously taxed at 10% and on $325 billion of previously untaxed goods. The selloff accelerated Tuesday after U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin reiterated the hikes would start Friday.
“We got that tweet, and it’s ‘hold your horses,’ we’re not going to get that trade deal that many people thought was in the cards,” said Jerry Braakman, chief investment officer of First American Trust in Santa Ana, California.
Lighthizer and Mnuchin said the Chinese retreated on trade offers before this week’s talks. The two countries were set to meet Wednesday to discuss trade, but that was delayed until Thursday after the tariff threat.
“The biggest threat to this market is the U.S.-China trade issues,” Ives said. “If China and the U.S. dig in on trade, it’s time to put on the hard hat because the market could go down another 10% plus.”
The feud has increased costs on goods for consumers and businesses.
This week is a reversal from last, when the S&P 500 hit a fresh high April 30 and the Nasdaq closed at a new peak May 3.