U.S. officials vow higher China tariffs will kick in by Friday; Vice Chairman Liu He expected to attend negotiations this week in Washington
U.S. stocks posted their worst one-day performance in weeks Tuesday, albeit finishing above session lows, building on the previous day’s decline after U.S. officials confirmed that tariffs on imported goods from China could be raised by the end of the week.
How did the benchmark indexes fare?
The Dow Jones Industrial Average DJIA, -1.79% fell 473.39 points, or 1.8%, to 25,965.09, while the S&P 500 index SPX, -1.65% dropped 48.42 points, or 1.7%, to 2,884.05. The Nasdaq Composite Index COMP, -1.96% fell 159.53 points, or 2%, to 7,963.76.
At session lows, the Dow had fallen 648.77 points, or 2.5%, while the S&P 500 slid 69.82 points, or 2.4% and the Nasdaq was down 224.27 points, or 2.8%
The Dow suffered its largest percentage decline since Jan 3, while the S&P 500 and Nasdaq fell more in percentage terms than any day since March 22, according to FactSet.
What drove the markets?
U.S. stocks posted their worst daily losses in weeks Tuesday, following on less pronounced losses Monday, as investors grew concerned that the U.S.-China trade dispute would escalate by week’s end, after months in which market participants had predicted that both sides would soon come to an agreement to lower tariffs and create more certainty over U.S.-China trade rules.
U.S. Trade Representative Robert Lighthizer said Monday that the Trump administration will increase tariffs on $200 billion in Chinese goods early Friday. The prospect of higher tariffs had been first raised on Sunday by President Donald Trump, rattling investors who had anticipated that better progress toward a near-term resolution between the two superpowers.
In a briefing, Treasury Secretary Steven Mnuchin, along with Lighthizer, told reporters that the U.S. administration was made aware over the weekend that China was trying to back away from “some of the language” that had been hammered out in prior talks.
U.S. officials said that tariffs on those Chinese goods will rise from 10% to 25% at 12:01 a.m. Eastern time Friday, and markets will likely be monitoring China for further reaction.
The Wall Street Journal reported early Tuesday that China’s Commerce Ministry said on Tuesday that Vice Premier Liu He will visit Washington to continue trade talks on Thursday and Friday.
Chinese investors appeared to take the latest developments in stride, while buyers in so-called haven securities nudged the value of assets perceived as safe slightly higher.
During Tuesday trade, the Arms Index, a volume-weighted breadth measure of buying and selling on the NYSE and Nasdaq showed increased selling pressure, though not at panic levels. In afternoon trade Tuesday, the NYSE Arms rose to 1.532 from 1.34 on Monday and the Nasdaq Arms increased to 1.201 from 1.19, with a 2.000 level seen as indicating the level of panic selling that can be a contrarian indicator.
Which stocks were in focus?
Shares of Anadarko Petroleum Corp. APC, +0.44% could be in focus Tuesday, after the company said Monday evening that a $38 million bid by Occidental Petroleum Corp. OXY, +1.57% was superior to a previously accepted by Chevron Corp. CVX, -0.11% Stifel Nicolaus, downgraded Anadarko to hold from buy, while raising its price target to $7 from $68.
Shares of Allergan PLC. AGN, -4.33% fell 4.9%, even after the pharmaceutical company reported first-quarter earnings that surpassed Wall Street expectations.
Mylan NV MYL, -23.81% shares fell more than 23% Tuesday, after the drugmaker reported a revenue shortfall that offset a profit beat.
Shares of American International Group Inc. AIG, +6.77% rose 6.8% Tuesday, after the company reported better-than-expected adjusted earnings on Monday evening.
Aramark ARMK, -5.69% stock tumbled 5.7% Tuesday, after the facilities-management company reported first-quarter profit and sales that fell short of analyst expectations.
Shares of Tesla Inc. TSLA, -3.24% were in focus after the company announced late Monday that Chief Executive Elon Musk spent $25 million to buy more shares in the electric car maker, to increase his stake in the company to nearly 20%.
Crocs Inc. CROX, -4.94% stock fell 4.9% Tuesday, after the footwear manufacturer reported first-quarter earnings and revenue that beat expectations.
Shares of GW Pharmaceuticals PLC GWPH, +1.47% rallied 1.5%, after the company reported positive phase-three trial results and narrowing losses on Wednesday evening. Shares rose further after Oppenheimer upgraded the stock to outperform, while JPMorgan and Stifel Nicolaus also raised their price targets on the stock.
What are analysts saying?
“Investors are going the hypothetical route and projecting out a worse case scenario on trade,” Craig Callahan, president of Icon Investments, said in an interview. “I think it’s too early to get so pessimistic, but a lot of investors are.”
“The likelihood the Fed cuts rates if the trade talks collapse is probably the reason the market will hang in better than it should given that the Chinese just upped the ante this morning,” Ian Winer, advisory board member of Drexel Hamilton, told MarketWatch.
“If the talks fall through, it will cast the markets back into the big unknown and the recent joy-fest will come to a halt. If the Fed turns even more dovish — and we all know the president and advisers are hounding them to move this direction — then that liquidity should keep things from unwinding too fast,” he added.
“The overriding concern here is that Trump has single-handedly halted the recent recovery in risk appetite by potentially derailing trade talks,” said Jasper Lawler, head of research at London Capital Group, in a note to traders.
What was on the economic calendar?
The number of job openings in the U.S. rose to 7.5 million on the last business day of March, according to the Labor Department. The rate at which Americans were being hired for new jobs or leaving old jobs was unchanged at 2.3%.
Dallas Fed President Robert Kaplan told the Hoover Institution Monetary Policy Conference that he expects wage growth and inflation to accelerate in 2019.
Federal Reserve Vice Chairman Richard Clarida said in an interview with Bloomberg News that, “We don’t see a strong case to move rates in either direction,” while adding that he believes the Fed’s current policy path will return the U.S. economy to 2% inflation.
Randal Quarles, vice chairman of the Federal Reserve Board of Governors participated in a panel discussion on financial regulation Tuesday morning.
How did other markets trade?
In Asia, the Shanghai Composite Index SHCOMP, -0.11% reversed a small loss to close up 0.6%, while the Nikkei 225 NIK, -1.72% back from an extended holiday break, fell 1.5%. European stocks SXXP, -1.37% were mostly lower, with the FTSE 100 index UKX, -1.63% down 1.2% as investors returned from a holiday and played catch up to Monday’s losses on the continent.
Gold GCM9, +0.17% was down slightly, while the U.S. Dollar Index DXY, -0.11%edged higher, and crude oil CLM9, +0.78% dropped.