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THE GIST (“THE WHAT”)
China’s retaliatory move of slapping additional tariffs on $75 billion worth of U.S. imports sparked a series of threatening tweets from President Trump that spooked the already jittery markets. The S&P 500 index attempted to stabilize following a reaffirming Jerome Powell’s prepared speech, but intensifying rhetoric by the President sent the index plunging to close near session lows at 2847.11, down sharply by 75.84 points and losing 2.59% over previous session’s close.
The index registered a fourth straight weekly loss following unexpected worsening of trade dispute. Demand for safe-haven bonds spiked alongside intensifying rhetoric, sending the Treasury yields lower across the board and pushing the closely-watched yield curve back into inversion. Energy and Technology led the broad-based brutal selling.
THE DETAILS (The “How & Why”):
The S&P 500 index opened the session lower after China announced its plan to levy additional tariffs on $75 billion worth of U.S. goods in retaliation to the latest threat of additional tariffs on $300 billion worth of Chinese imports. The index, however, gained an upward momentum after Fed Chairman Jerome Powell reaffirmed his stance of sustaining the current economic expansion in the form of future rate cuts.
Losses accelerated after a series of threatening tweets by President Trump rattled the already jittery markets and ignited an intense selling across sectors and asset classes. Escalating trade tensions, the President threatened to slap another round of tariffs on Chinese imports and ordered U.S. companies to move out of China.
The index retreated sharply to erase the entire week’s gains on renewed concerns that the intensifying trade war could push the global economy into recession. Panicked investors flocked towards safety, pushing the Treasury yields lower across the board and once again inverting the closely-watched yield curve between the 2-year and 10-year yields. The 10-year Treasury yield fell to 1.523%, its lowest level since August 2016.
In his prepared speech at the Jackson Hole Symposium, Powell signaled at future interest rate cuts while fighting back President Trump’s criticism, quoting that the Fed is not responsible to resolving international trade disputes. This further ignited the President’s ire in the form of angry tweets suggesting Powell is a bigger enemy than China.
All of the eleven primary sectors were hit hard amid worsening trade tensions. Energy sector was the hardest hit, closing 3.37% lower as oil prices plunged on expectations of Chinese tariffs. Pioneer Natural Resources, Hess Corp and Diamondback Energy gave up more than 4% apiece.
China-sensitive technology stocks tumbled alongside President’s comments. Apple Inc. fell 4.62%. Analog Devices, Applied Materials, Broadcom Inc., Microchip Technology and Nvidia Corp, all shed more than 4%. Among the other worse performing sectors in today’s panic selling, Financials, Industrials, Consumer Discretionary, Communication Services and Materials all closed more than 2% lower.