The Dow Jones plummeted on Friday as Donald Trump continued to ratchet up the anti-China rhetoric.
The president’s move is blowing up already strained U.S.-China relations. But more than that, the White House’s decision to reignite trade war tensions in the middle of a deadly pandemic threatens to rock the stock market’s shaky foundations.
All three major U.S. stock market indices took a hit to end the week.
The Nasdaq led the retreat after Elon Musk’s bizarre tweetstorm sparked a crash in Tesla stock, and the S&P 500 followed closely behind as Amazon stock cratered following its first-quarter earnings presentation. The Dow Jones was the strongest of the three after DJIA member Apple confirmed its commitment to stock buybacks.
Despite the trouble in the stock market, crude oil rallied back toward the $20 per barrel handle. This was mainly because the rig count declined for the seventh straight week.
After a weak Thursday, risk sentiment buckled on Friday.
Very hawkish rhetoric from President Donald Trump about China’s handling of the coronavirus pandemic has reinflamed longstanding tensions with Beijing.
Larry Kudlow, the White House’s top economic advisor, doubled down in an interview with CNBC. He complained about China’s lack of transparency during the early days of the coronavirus outbreak.
Despite saying he didn’t want to jar markets, the Dow extended its losses shortly after the interview. Kudlow’s efforts to pump up the phase one trade agreement clearly fell flat on Wall Street.
It is astonishing that the threat of more tariffs is what it took to knock the U.S. stock market, given the implosion of the job market and collapsing economic data. But this is precisely what analysts at IG believe is the case.
In a comment shared with CCN.com, senior analyst Joshua Mahony noted that the last thing Wall Street wants right now is another geopolitical crisis on its hands:
Market sentiment has been dealt a blow as Donald Trump raised the likeliness of yet another significant breakdown in relations between the world’s two largest economies. Trump’s claim that the COVID-19 virus originated in a Wuhan lab could send shockwaves throughout the world if proven true.
While the Australian PM has seen little evidence of such a move, there is a growing clamor for an inquiry which could drive a possible rift between China and the rest of the world if proven correct. The last thing markets want right now is another trade war with the world seemingly lurching from crisis to crisis over recent years.
With the prospect of fresh tariffs becoming a real possibility, critics will claim that Trump is attempting to create a diversion to avoid taking any blame for the mounting job losses.
One thing is for sure, and that’s bulls won’t enjoy a return of the tariff man. Economic fundamentals are exponentially weaker than they were during the last phase of the trade war.
After notching its best month in decades, the Dow 30 turned bloody on Friday as risk appetite hit a wall.
Yet the overall losses were mitigated by the sturdy performance of Apple, which fell less than 1% after a mixed earnings report.
Elsewhere, the weakness was much harder to ignore. Dow Inc. took a whopping 7.8% hit, and risk bellwether Caterpillar slid 4.3%.
Domestic play Walmart (+1.6%) was the only member of the Dow Jones in the green. The grocery store giant continues to act as a defensive target for investors.
This article was edited by Josiah Wilmoth.