U.S. stocks snapped a four-session winning streak Wednesday after the Trump administration announced new tariffs on Chinese goods, further escalating tensions between the two largest economies in the world, which some investors fear could morph into a full-on trade war.
How did the market fare?
The Dow Jones Industrial Average DJIA, -0.88% slumped 219.21 points, or 0.9%, to 24,700.45.
The S&P 500 SPX, -0.71% fell 19.82 points, or 0.7%, to 2,774.02. Only 1 of the 11 primary S&P 500 sectors closed in the green, with materials and the industrial sectors, both of which are seen as sensitive to trade issues, among the biggest losers. The energy sector also weighed on the market, tumbling more than 2% alongside a steep drop in the price of crude-oil futures. The utilities sector, up 0.9%, was the sole gainer.
The Nasdaq Composite Index COMP, -0.55% shed 42.59 points, or 0.6% to 7,716.61.
What is driving the market?
The White House late Tuesday said it would assess 10% tariffs on a further $200 billion in Chinese goods. The move is seen as deepening the rift with Beijing and sending a message to other trading partners that the U.S. is willing to escalate a trade fight. The U.S. last week hit Beijing with levies on $34 billion in goods, and Beijing retaliated with tariffs of the same amount. A final decision on the products to be hit with the new tariffs is expected after a consultation period in late August.
China’s Ministry of Commerce said in a statement that the new levies are “totally unacceptable” and that the behavior is hurting not just China but the whole world.
Recent gains in the market have come as Wall Street has attempted to pivot its focus to coming second-quarter earnings, which are expected to be strong. Such signs of economic strength, along with improving economic data, could provide a floor under equity prices, just as the trade issue serves as a ceiling.
What were analysts saying?
“This is different from the other trade announcements, because the size is significantly larger, and because China is unable to directly reciprocate at $200 billion because they don’t import that much. It’s unclear what it might do next, but it is clearly another step closer to a full-blown trade war,” said David Carter, who oversees about $2 billion as chief investment officer at Lenox Wealth Advisors.
“If the trade skirmish escalates into a full-blown trade war, that will be a bigger force in the markets than the strong fundamentals.”
“Even though the tariffs actually imposed up to now are relatively small in comparison to overall trade flows and GDP, it is hard to see how a full-blown trade war can be avoided at this stage. There is no-one left in the administration or in Congress to rein in President Donald Trump’s long-held protectionist beliefs and other countries are not shying away from the fight,” said Paul Ashworth, Chief U.S. economist at Capital Economics.
What’s on the economic calendar?
The June producer-price index rose 0.3%, as did the core PPI, which excludes volatile food and energy. The 12-month rate of wholesale inflation, meanwhile, climbed to 3.4% from 3.1%, marking the highest perch since the waning months of 2011.
Separately, wholesale inventories rose 0.6% in May.
Among Federal Reserve speakers, New York Fed President John Williams was slated to deliver a speech on the economy to Brooklyn Town Hall at the Brooklyn Law School at 4:30 p.m. Eastern.
Which stocks were in focus?
Among notable industrial stocks, Boeing Co. BA, -1.89% fell 1.9% while 3M Co. MMM, -1.89% also closed downy by 1.9% and Caterpillar Inc. CAT, -3.18% skidded 3.2%. All three were among the biggest drags on the Dow.
In the energy space, Chevron Corp. CVX, -3.19% lost 3.2%. Halliburton Co. HAL, -2.51% was down 2.5%. Occidental Petroleum OXY, -2.07% dropped 2.1% and Marathon Oil MRO, -3.09% fell 3.1%, while Exxon Mobil Corp. XOM, -1.28% was off 1.3%.
Shares of 21st Century Fox Inc. FOXA, -3.98% sank 4% after the media company significantly lifted its offer price to takeover Sky PLC SKY, -0.50% The move is heating up a bidding war with Comcast Corp. CMCSA, +1.29% which is also interested in buying the British broadcaster. Comcast shares rose 1.3%.
Altaba Inc. AABA, -2.91% fell 2.9% after Gabelli & Co. downgraded the stock to hold, citing its recent announcement that it would sell part of its stake in Yahoo Japan.
Pfizer Inc. PFE, -0.59% is organizing itself into three different businesses as it continues to mull the future of its over-the-counter medicines unit. The stock fell 0.6%.
Shares of Nvidia Corp. NVDA, -2.26% dropped 2.3% after the tech company late Tuesday announced a partnership with German car maker Daimler AG DAI, -1.66% and auto-parts giant Bosch Ltd. to test robot taxis in California.
Fastenal Co. FAST, +10.05% surged by 10% after the company late Tuesday said its board raised the quarterly dividend to 40 cents a share from 37 cents a share. The fastener manufacturer also reported better-than-expected second-quarter earnings of 74 cents a share.
What were other markets doing?
The ICE U.S. Dollar Index DXY, +0.05% was higher while the yen USDJPY, +0.31% was weaker against the greenback. The buck bought ¥112.02, up from ¥111.00 late Tuesday in New York.
Gold futures GCQ8, -0.07% settled lower and oil suffered one of its sharpest daily declines in more than a year, on a percentage basis.
Asian markets closed mostly lower in reaction to the tariff news, with the Shanghai Composite SHCOMP, +1.69% sliding by 1.8%. European stocks SXXP, -1.26% finished in the red across the board.