Wall Street ended its four day winning streak on Thursday as trade related conflicts between the United States and China reared its head again. The broad-based decline of the U.S. stocks dragged down all three major indexes to the red. The four-day long market rally came to a halt following a Bloomberg report that the Trump administration is considering the idea of levying a new tariff worth $200 billion on Chinese goods by the end of the next week.
The Dow Jones Industrial Average (DJI) closed at 25,986.92, declining 0.5% or 137.65 points. The S&P 500 Index (INX) was down 0.4% to close at 2,901.13. The Nasdaq Composite Index (IXIC) closed at 8,088.36, decreasing 0.3%. A total of 5.99 billion shares were traded on Thursday, lower than the last 20-session average of 6.09 billion shares. Decliners outnumbered advancers on the NYSE by 1.84-to-1 ratio. On the Nasdaq, decliners had an edge over advancers by 1.36-to-1 ratio. The CBOE VIX increased 1.3% to close at 13.53, its highest since Aug 17.
How Did the Benchmarks Perform?
The Dow fell below its psychologically important 26,000 level with 25 components of the 30-stock blue-chip index closing in the red while four finished in the green and one remained unchanged. The tech-heavy Nasdaq Composite lost 0.3% after reaching an all-time high of 8,133.30 during the trading hours.
The S&P 500's decline was led by a decrease of 1.1% in Materials Select Sector SPDR (XLB), a loss of 0.8% in Financials Select Sector SPDR (XLF) and a drop of 0.7% in Industrials Select Sector SPDR (XLI). Notably, 10 out of 11 sectors of the benchmark index closed in the red while one ended in the green.
Trade War Fears Reignite
Six-month old tariff related conflicts between the United States and its largest trading partner China is showing no signs of abatement. On Aug 30, Bloomberg reported citing six people familiar with the matter that President Donald Trump supports moving ahead with a new tariff worth $200 billion to be imposed on a vast array of Chinese goods ranging from selfie sticks to semiconductors.
The time line of submitting comments from companies and members of the public will end on Sep. 6. Trump is considering levying next round of tariffs by the end of the next week. Notably, the two countries have already imposed $50 billion of tariffs on each other's exports in the last six months. Meanwhile, the Chinese government has warned the United States about a "protracted" trade war if the Trump administration continues to impose tariffs on Chinese goods.
Moreover, in an interview with Bloomberg, President Trump has rejected a recent proposal from the European Union to bring down all tariffs on U.S. cars to zero if the United States reciprocates with same measures. At present, the United States charges a 25% tariff on light trucks and pickups while 2.5% on smaller cars. Meanwhile, the EU levies a 10% tariff on all passenger vehicles.
As trade war concerns intensifies, the share price of trade-sensitive companies like Caterpillar Inc. CAT and The Boeing Co. BA plummeted 2% and 0.9%, respectively. Caterpillar carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
On Aug 30, the Labor Department reported that the number of American people filing for unemployment benefits increased 3,000 to a seasonally adjusted 213,000 for the week ended Aug 25. This figure was lower than the consensus estimate of 214,000. However, the monthly average claims fell by 1,500 to 212,250, reflecting its lowest since December 1969. The continuing clams have declined by 20,000 to 1.71 million.
On Aug 30, the Bureau of Economic Analysis reported that U.S. consumer spending has increased 0.4% in July, as per with consensus estimate. This marks the fifth consecutive monthly increase of consumer spending. Meanwhile, personal income rose 0.3% in July, lower than the consensus estimate of an increase of 0.4%. Consequently, personal savings in July fell to 6.7% from 6.8% in June as spending overtakes incomes.
The 12-month PCE index (personal consumption expenditure index) rose by 0.1% to 2.3% in July, marking its highest level since April 2012. Notably, PCE index is considered as Fed's preferred measure of inflation. Core PCE index (excluding food and energy items) also reached 2% for the first time since March and only second time since 2012.
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