NEW YORK (Reuters) - Major U.S. stock indexes fell as much as 2 percent on Thursday, where they looked on track for the steepest drop since a Wall Street rout six weeks ago, in anticipation of an announcement by U.S. President Donald Trump that had traders concerned about prospects for a global trade war.
Markets pared gains slightly by midafternoon after Trump signed a presidential memorandum that could impose tariffs on up to $60 billion of imports from China, although his action was far removed from threats that could have ignited a global trade war.
White House officials told a briefing ahead of the trade announcement that the administration was eyeing tariffs on $50 billion in Chinese goods. There was no explanation of the difference between the numbers provided by White House officials in the briefing and Trump’s $60 billion.
KEVIN CARON, SENIOR PORTFOLIO MANAGER, WASHINGTON CROSSING ADVISORS, FLORHAM PARK, NEW JERSEY
“Once the (tariff) news came out, the unknown became a known. Perhaps that gave some traders a sense of proportion and removed one of the uncertainties from the market…It’s been a long time: you have to go all the way back to the Paris Accords of the 1980s to find something similar, where there was a direct effort to address the imbalance between two countries, and even then it was a more cooperative kind of effort. If this is just posturing, and there’s nothing on the follow-through, it will just evaporate. On the other hand, if there’s retaliation and things become more hostile, you can expect an interruption in trade and capital flow, which will be negative for the stock market in the near term.”
“In the long run, it might actually be a positive thing to resolve the global imbalance that many economists have said was at the root of the global instability that resulted in the financial crisis and the European debt crisis…It’s very unusual to have one country run a significant deficit or surplus against another country for a long period of time. That has been the relationship between the United States and China. It’s highly unusual and it’s not sustainable, without one country ending up with a large debt and a growth burden to go along with it.”
KEITH LERNER, CHIEF MARKET STRATEGIST, SUNTRUST ADVISORY SERVICES, ATLANTA
“Global growth momentum has shown a bit of softness, specifically in the manufacturing data, the PMI in Europe and Japan that came overnight. You also have some uncertainty around the Fed. It didn’t raise the forecast for interest rates for this year, but it did raise it for the (later) years. There’s still some anxiety around what that means for the market. The third thing is trade. The market expects the White House to announce tariffs on China today. The report is around $50 billion. So you take in trade, the Fed, softer economic data, that’s the catalyst for today’s move.”
“The bigger picture is that we’re in a multi-month bottoming process that’s very sloppy. The market is looking for a catalyst out there to break to the upside, and there’s not an obvious one in the near term.”
JOHN CAREY, PORTFOLIO MANAGER, AMUNDI PIONEER ASSET MANAGEMENT, BOSTON
“There’s too much negative sentiment right now. There are stories about the tech sector, between the disappointing results at Oracle and the Facebook situation, that place in doubt the continued leadership of the so-called FANG stocks. At the same time, you have concerns about tariffs with respect to international trade. There’s too much uncertainty for investors.”
“At the Fed press conference, the Fed reduced its outlook for the economy somewhat. It changed its description of economic growth to ‘moderate’ from ‘solid,’ suggesting that maybe its view of things is a little bit more cautious. Yet it also indicated that it will continue its course of raising rates. Maybe that introduced a little bit of doubt about what the Fed is seeing with economic growth, the potential for accelerated growth.”
“I think it’s possible that it will be rough sledding for a while. I don’t see anything on the horizon that will reassure people that things are just great. We’ll have corporate earnings in the next few weeks. If those are better than expected, then it’s possible that the market will look beyond the uncertainties.”
MICHAEL O’ROURKE, CHIEF MARKET STRATEGIST, JONESTRADING, GREENWICH, CONNECTICUT:
“There are trade war fears and we’re supposed to get (an announcement) on the Chinese tariffs and there’s (U.S. Trade Representative Robert) Lighthizer testifying in front of the Senate on trade policy. I don’t think that helps. Facebook still has its issues so that’s stirring tech. The fact that Mark Zuckerberg said maybe we should be regulated... I’m not sure that will inspire confidence on the part of investors.
“Treasuries are getting a flight-to-quality bid so that’s creating a bid in interest-rate sensitive names.”
STEFAN WINTNER, VICE PRESIDENT, VOLATILITY STRATEGIES, DUNN CAPITAL MANAGEMENT, STUART, FLORIDA “From what I see (in the U.S. equity options market), there does not seem to be a lot of panic there yet – at least not more than since the Feb 5 crash. “The Cboe Volatility Index is doing exactly what I would have expected given the size of the move in the S&P 500 Index. The VIX futures market at the moment is a bit subdued. I would say it could have gone up more if there had been panic. “In the past, we have seen larger moves closer to the end of the session. It appears people wait for an intra-day reversal of the S&P. Towards the end of the day, if we stay down there, in the S&P, where we are now, there could be a pickup in VIX futures activity.”
PETER COSTA, PRESIDENT, EMPIRE EXECUTIONS, NEW YORK
“The market has been extremely sensitive to anything to do with trade. Because in reality, no one wins a trade war, and if there is going to be any kind of escalation of a trade war with China, let’s say, we’re not going to be winners on that and neither are they. The market is a little spooked from that and anytime you hear that, that definitely puts a sour taste in people’s mouths.”
“(Facebook) definitely is impacting the tech sector and I think that has some bearing on the fact that tech stocks have been down.”
“There’s a lot of jitters about. There’s not a lot of positives right now to hang onto because earnings season is over and that is generally where you hang your positive feelings.”
STOCKS: The Dow was down 368 points, or 1.49 percent; The S&P 500 was 1.34 percent lower and the Nasdaq was off 1.32 percent. The Dow and Nasdaq briefly fell more than 2 percent in late morning trade.
TREASURIES: The yield on the U.S. 10-year Treasury note fell to 2.8336 percent.
VIX: The Cboe volatility index rose to 20.56
DOLLAR: The U.S. dollar index was up 0.08 percent
Compiled by Alden Bentley
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