By Ben St. Clair and Danielle Chemtob
U.S. stocks slumped Wednesday as concerns over escalating trade
tensions and falling oil prices outweighed optimism about the
coming earnings season.
The Trump administration said late Tuesday it would assess 10%
tariffs on an additional $200 billion in Chinese goods. The
tariffs, which wouldn't come into effect for at least two months,
cover a variety of Chinese products including consumer goods.
China called the move "totally unacceptable" in a statement
attributed to an unnamed ministry spokesman and vowed to roll out
unspecified countermeasures.
The Dow Jones Industrial Average lost 219.21 points, or 0.9%, to
24700.45. The S&P 500 declined 19.82 points, or 0.7%, to
2774.02 and the technology-heavy Nasdaq Composite dropped 42.59
points, or 0.5%, to 7716.61. The indexes snapped a four-session
winning streak but remain modestly higher for the week.
"Every time a trade headline comes out, it seems to suck the
oxygen away from everything else the market is paying attention
to," said Jeff Mills, co-chief investment strategist for PNC
Financial Services Group.
The energy sector in the S&P 500 fell 2.1% as oil prices
suffered their steepest decline in more than a year. U.S. crude
dropped 5% to $70.38 a barrel after Libya indicated it would resume
export activities at its eastern ports. Shares of Exxon Mobil
slipped $1.07, or 1.3% to $82.59, and Chevron dropped 4.07, or 3.2%
to 123.52.
Despite the sharp declines, many investors remain bullish on the
energy sector, which has seen the largest increase in earnings
estimates for the second quarter, according to FactSet.
"If oil can stay in range of high $60s to mid $70s, it's kind of
a sweet spot for the economy in general," Mr. Mills said.
Commodity prices were also pressured by a strengthening dollar;
the WSJ Dollar Index, which measures the U.S. currency against 16
others, added 0.8%.
Copper futures declined 3.4% to around one-year lows. The metal,
which is seen by many analysts as a barometer for global economic
health, has been hit especially hard amid the growing trade
worries.
Ten of the 11 sectors in the S&P 500 ended lower, with
materials and industrials stocks the biggest decliners after energy
shares. Those sectors declined 1.7% and 1.6%, respectively. The
utilities sector, which is considered a defensive play because of
its hefty dividend payments, was the only group trading higher,
with a gain of 0.9%.
Caterpillar was among the biggest losers in the Dow industrials,
falling 4.49, or 3.2% to 136.76. The heavy-equipment manufacturer
has said tariffs would increase its material costs.
U.S. stocks have generally been more resilient to the trade
tensions than their Chinese peers. In the past, they have rebounded
relatively quickly from trade-related pullbacks, partly because the
fallout on corporate earnings is expected to be fairly limited. The
Shanghai Composite, meanwhile, has declined 16% this year, versus a
3.8% gain for the S&P 500, and the Chinese benchmark slumped
1.8% on Wednesday.
Some investors, though, are worried that product-specific
tariffs could lead to price increases for U.S. consumers and put
pressure on the Federal Reserve to raise interest rates.
And the latest round of economic data showed firming inflation,
as a gauge of U.S. business prices rose in June. The producer-price
index, a measure of the prices businesses receive for their goods
and services, rose 3.4% from the year before, the largest annual
increase since November 2011, the Labor Department said
Wednesday.
"More broadly, when we think about what it is that is going to
sort of put an end to this market cycle, it's actually more likely
going to be the Fed than it is a global trade war," said Emily
Roland, head of capital markets research at John Hancock
Investments.
The yield on the 10-year U.S. Treasury note fell to 2.844% from
2.873% on Tuesday. Yields decline as prices rise.
Market participants had been tentatively optimistic on trade
earlier in the week, driving stocks higher as they looked toward
what are expected to be positive second-quarter earnings
reports.
Analysts expect earnings from S&P 500 companies to register
growth of roughly 20% for the second quarter from the year-earlier
period, according to FactSet. Major U.S. banks, including JPMorgan
Chase, will announce their results Friday.
"Investors are definitely going to be more focused on
fundamentals as we head into earnings season," Ms. Roland said.
"The key challenge is going to be deciphering whether any mentions
of trade or tariffs are excuses for potentially poor business
results, or are they actually a real element that's weighing on
equities."
(END) Dow Jones Newswires
July 11, 2018 17:30 ET (21:30 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.