The Dow Jones declined on Friday after President Trump pushed back against the narrative that he was prepared to roll back tariffs on China.
Cushioning the blow to the Dow, comments from the EU’s Jean-Claude Juncker that Trump would not start a trade war against Europe helped support risk appetite.
Despite the uncertainty, markets remain close to record highs, and Nordea Asset Management anticipates stable trading for the stock market heading into December.
There was not a considerable amount of volatility in the major US stock market indices on Friday. The Nasdaq led the way with a minor 0.16% gain, while the S&P 500 traded flat and the Dow Jones Industrial Average limped lower.
Shortly before the closing bell, the Dow had declined 52.68 points or 0.19% to settle at 27,622.12.
A sizable rally in the US dollar provided some additional pressure on stocks, with the rise in the DXY sending the gold price to its worst performance in years.
While there are concerns over the state of the trade war between the US and China, in Europe, the EU’s president remains confident that Trump will not pursue a trade war by targeting their automobile exports. Given Trump’s tendency for official policy to clash with his public comments, Dow bulls are unlikely to be trusting Juncker’s opinion at face value.
Additional news that could be significant for the Dow Jones outlook is the imminent arrival of Michael Bloomberg into the fight for the Democratic nomination in 2020. Bloomberg would be an extremely market-friendly option to counter the rise of left-wing candidate Elizabeth Warren.
On the data front, Michigan Consumer Expectations beat forecasts, but the sentiment portion of this report was slightly lower than anticipated.
A classic example of what makes US trade policy so tricky for investors was highlighted in Washington when Trump walked back headlines that the US was working with China to roll back tariffs.
Speaking to reporters, the president sent the Dow Jones drifting lower after stating that China wanted the levies removed, but he was not prepared to do that at this time.
The comments come just hours after reports surfaced that several White House advisers had pushed back firmly against the initial plan to de-escalate the trade war so dramatically.
This didn’t come as a surprise to the many analysts who warned that removing tariffs would eliminate US leverage in future rounds of trade talks.
CNBC’s Jim Cramer actually predicted this would happen a couple of days on his “Mad Money” show, outlining that China had yet to show enough good faith for the US to make any significant concessions.
While uncertainty reigns over when the initial trade agreement between the US and China will be signed, record highs still suggest a good deal of optimism remains in the stock market.
In remarks shared with CCN.com, Sebastian Galy, Senior Macro Strategist at Nordea Asset Management, predicted that a buoyant Dow Jones is unlikely to hit many bumps before Christmas:
Equities have been rallying on hopes of a phase one deal between the United States and China and excessively bearish earnings expectation on the back of a recession meme. Looking ahead, a few spanners could hit the wheel though the odds are that we can still cruise into December before a phase of consolidation. Broadly speaking, we still believe that we are in a sideways market with a mild positive drift.
A quiet close to the week in the Dow 30 saw the Disney leading with a monster rally of more than 3.15%. Impressive earnings appeared to be the catalyst for the bounce in DIS, allying with optimism around the company’s aggressive foray into the streaming wars with Disney+.
Exxon Mobil was one of the worst-performing stocks in the Dow Jones, losing 1.91%. XOM is now up just 3% on the year, underperforming the index average by 15%.
Apple and Boeing also proved to be a drag on the index, with heavily weighted BA sliding 1.42%.
Last modified: September 23, 2020 1:16 PM