Wall Street investors were restrained on Monday amid the fears for failure in the US-China trade talks. However, US stocks wiped out most of their losses, pushing from the bottom of the session.
The blue-chip index Dow Jones Industrial Average fell by 78 points, or 0.3%, to 26,427 points, after collapsing by more than 450 points at the start of trading. The broader S&P 500 lost 0.4% and the technology Nasdaq Composite dropped by 0.5%. Ten of the eleven S&P 500 sectors reported declines driven by the decline in industry, mining, and technology sector sectors, which all have heavy exposure to China.
This year’s rally has been fueled in part by the Federal Reserve’s dovish posture, signs the domestic economy is on solid footing, and optimism the US and China could reach a trade deal. The S&P 500 was up 17.5% this year through Friday’s market close.
US President Donald Trump demonstrated a determination to subordinate China to the negotiations. After threatening with the unexpected introduction of new customs tariffs and thus upsetting global markets, Trump confirmed his aggressive course on Monday.
“The US is losing between 600 billion USD to 800 billion USD per year on trade”, write Donald Trump on Twitter, referring to the US trade deficit, “We’re losing 500 billion USD with China alone, but we’re not gonna do that anymore!”, added he.
In fact, at the end of this week, the framework of the trade agreement between the US and China should be set. The US president recently promised a “monumental trade pact”.
Higher customs duties on Chinese goods are expected already on Friday, with the prospect of new trade barriers in the near future. Trump has announced that it will increase current Chinese import duties on goods worth 200 billion USD from 1% to 25%. He also threatened to impose 25% of China’s total imports of more than 500 billion USD. So the US president suddenly broke off the truce and threatened the Washington-Beijing agreement.
White House sources say that Beijing has signaled for denial in areas that the US delegation believed were already agreed. Especially in the area of technology transfer, there was no convergence. Washington accuses China of forcing foreign companies to disclose knowledge and innovation before they are placed on the market. Another problem is Chinese subsidies and tax cuts for state-owned companies, whether in manufacturing or in the high-tech industry. There was disagreement about how China could be punished if it did not comply with the agreements. In addition, Trump wanted to keep some of the duties that were introduced a year ago – something China rejects.
The US-China trade war slows the world trade, reduces investor confidence and hinders supply chains. The German federal government warned on Monday of a possible escalation.
Corporate stocks performance
Trade tensions, however, affected the industrial companies such as 3M, Caterpillar or United Technologies, as well as technology companies such as Apple or Intel, which ended the session with a fall of between 1% and 1.7%. However, analysts expect the textile industry to be particularly heavily affected by a possible increase in tariffs as it is currently importing a lot from China. In particular, the experts mention above all the Yeti textile company, whose shares collapsed by more than 4%. Nike also fell by 2.5%.
On the losing side in Dow was Boeing with a loss of 1.3%. As the aircraft manufacturer admitted that knew about a year before the first 737 MAX crash that the new model had a software problem.
The chipmakers Advanced Micro Devices, Micron, and Nvidia all fell between 4% and 5%.
Shares of Kraft Heinz Co. KHC, +0.58% rose 0.6%, shrugging off news that the food company will have to restate the financial statements in its annual reports for 2016 and 2017, and for each quarterly period for the first nine months of 2018, as it continues to investigate “certain misstatements.”
Shares of Sysco Corp gained 3.5% after the food-service company reported a fiscal third-quarter adjusted profit that beat expectations, though revenue came up shy.
Anadarko Petroleum confirmed Occidental Petroleum Corp raised the cash portion of its rival buyout bid, which Anadarko said last week could represent a “superior proposal” to Chevron’s bid. Shares of Anadarko were up 3.8% while Occidental’s stock was up 1.4% and Chevron shares rose 1%.
The stocks of Tyson Foods climbed 2.6% after the company said sales in its fiscal second quarter rose 7% to 10.44 billion USD from a year earlier. Analysts expected 10.28 billion USD in sales, according to FactSet.
Shares of Sinclair Broadcast Group soared 35% to a record high, and the biggest one-day gain in 10 years, after the TV broadcasting company’s deal to buy regional sports networks from Walt Disney prompted B. Riley FBR to turn bullish on the stock.
Bausch Health formerly known as Valeant Pharmaceuticals, raised its full-year outlook Monday, after reporting first-quarter revenue that missed expectations. Shares climbed 6.2%.