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GlobalStocks Slump as Trump Threatens New Tariffs on China Stocks Fall as Trump Threatens New Tariffs on China
(about 3 hours later)
President Trump’s renewed threat to increase tariffs on Chinese imports upended investor expectations about progress toward a trade deal on Monday and sent stocks lower. President Trump’s renewed threat to increase tariffs on Chinese imports upended investor expectations about progress toward a trade deal on Monday, making for a volatile day on Wall Street.
The S&P 500 dropped around 1 percent, in early trading with shares in trade-sensitive sectors like industrials, semiconductor manufacturers and technology leading the decline, before paring some of those losses. Stocks in China ended Monday down more than 5 percent. The S&P 500 started the day by declining more than 1 percent, with shares in trade-sensitive industrials, semiconductor makers and other technology companies leading the decline. But after recouping the losses throughout the day, the broad market index ended down just 0.45 percent.
The decline reflected a sudden change in expectations about the potential for a trade deal between the United States and China. With a Chinese delegation expected to arrive in Washington to resume negotiations on Wednesday, hopes were running high that the world’s two largest economies would end a tit-for-tat trade war that began last summer. Stocks in Asia and Europe fared worse, with the major benchmark in China down more than 5 percent.
Confidence in that outcome dimmed on Sunday when President Trump threatened to raise tariffs on about $200 billion in Chinese-made goods to 25 percent from the current 10 percent unless he saw more progress toward a deal. He also threatened to extend the tariffs to include another $325 billion in Chinese imports. The volatile trading on Monday reflected a sudden change in expectations about the potential for a trade deal between the United States and China. With a Chinese delegation expected in Washington to resume negotiations on Wednesday, hopes were running high that the world’s two largest economies would end a grinding trade war that began last summer.
The sell-off on Wall Street Monday interrupted what had been a placid rise for the S&P 500 this year. The benchmark hit a record high last week, and even after the drop on Monday it had gained around 16 percent so far this year. That was the market’s best start to a year since 1987. Confidence in that outcome dimmed on Sunday when Mr. Trump threatened to raise tariffs on about $200 billion in Chinese-made goods to 25 percent from the current 10 percent unless he saw more progress toward a deal. He also threatened to extend the tariffs to include another $325 billion in Chinese imports.
The rally was set off by the Federal Reserve’s decision to hold off on further interest rate increases, but signs of progress in the trade negotiations between China and the United States also contributed to the recovery in share prices. That made the revival of public rancor on Mr. Trump’s part enough to put investors on alert, said Michael Gibbs, director of portfolio and technical strategy at the brokerage firm Raymond James in Memphis. The trading activity on Monday threatened to interrupt what has been a placid rise for the S&P 500 this year. The benchmark hit a record high in late April, and even after the drop on Monday it has gained around 17 percent so far this year.
“It’s 100 percent about trade,” Mr. Gibbs said of the market slump on Monday. “We do know the market had priced in the fact that the deal was just about to be done and signed.” The year’s rally was set off by the Federal Reserve’s decision to hold off on further interest rate increases, but signs of progress in the trade negotiations between China and the United States also contributed to the recovery in share prices. That made the revival of public rancor on Mr. Trump’s part enough to put investors on alert Monday.
“It’s 100 percent about trade,” said Michael Gibbs, director of portfolio and technical strategy at the brokerage firm Raymond James in Memphis, referring to the early slump. “We do know the market had priced in the fact that the deal was just about to be done and signed.”
[Read more about the president’s latest threat and China’s reaction.][Read more about the president’s latest threat and China’s reaction.]
The Chinese economy, the world’s second-largest and the most important growth engine in Asia, had picked up momentum in recent weeks after a surge of government-driven lending. Mr. Trump’s comments on Sunday threatened to upend that growth, rattling investors across the board. The Chinese economy, the world’s second largest and the most important growth engine in Asia, had picked up momentum in recent weeks after a surge of government-driven lending. Mr. Trump’s comments on Sunday threatened to upend that growth, rattling investors across the board.
Shares in China led the market decline on Monday, and the Shanghai Composite closed down 5.6 percent. The value of China’s currency weakened, and prices for oil and agricultural products slipped. Markets across Asia ended broadly lower as well, and markets in France and Germany were more than 1 percent lower in afternoon trading. Shares in China led the market decline on Monday, and the Shanghai Composite closed down 5.6 percent. Markets across Asia ended broadly lower as well, and markets in France and Germany were both down a little more than 1 percent.
Several analysts said that the recent strength of the economy and stock market in the United States might have convinced the Trump administration that now was the time to increase pressure on China in hopes of cementing a deal before the presidential election campaign in the United States begins in earnest.Several analysts said that the recent strength of the economy and stock market in the United States might have convinced the Trump administration that now was the time to increase pressure on China in hopes of cementing a deal before the presidential election campaign in the United States begins in earnest.
“The U.S. has got the strongest economy in the world and you’ve got a president that doesn’t back down,” said Bruce Bittles, chief investment strategist at asset management and brokerage firm Baird. “The U.S. has got the strongest economy in the world, and you’ve got a president that doesn’t back down,” said Bruce Bittles, chief investment strategist at the asset management and brokerage firm Baird.
But the strategy is not without risks for American investors. Nearly 40 percent of the revenue generated by S&P 500 companies comes from outside the United States. China is a key driver of global growth, and a renewed slowdown there would probably weigh on business conditions worldwide and add to the muted out look for corporate earnings among American companies this year. But the strategy is not without risks for American investors. Nearly 40 percent of the revenue generated by S&P 500 companies comes from outside the United States. China is a key driver of global growth, and a renewed slowdown there would probably weigh on business conditions worldwide and add to the muted outlook for corporate earnings among American companies this year.
After earnings surged 22 percent in 2018 — thanks to a strong economy and corporate tax cuts — analysts have expected that S&P 500 companies would increase their earnings-per-share a just bit more than 4 percent this year. That, however, depends on the global economy holding up. After earnings surged 22 percent in 2018 thanks to a strong economy and corporate tax cuts, analysts have expected that S&P 500 companies would increase their earnings per share just a bit more than 4 percent this year. That, however, depends on the global economy holding up.
“You need some help from these other economies to try to get you to your expectations,” said Scott Wren, senior global equity strategist at the Wells Fargo Investment Institute.“You need some help from these other economies to try to get you to your expectations,” said Scott Wren, senior global equity strategist at the Wells Fargo Investment Institute.