Dow Futures Shivers as Trade War Threatens to Derail Earnings Momentum

Harsh Chauhan @techjunk13
October 25, 2019 10:25 UTC

Futures on the Dow Jones Industrial Average (DJIA) are swimming in negative territory Friday after an initial spike, indicating that the stock market might end the week nervously.

That won’t be surprising as the boost provided by solid earnings reports from Microsoft, Tesla, and 3M was punctured by weak numbers from Amazon that stripped Jeff Bezos as the world’s richest man.

Meanwhile, there seems to be no end in sight for the U.S.-China trade war. Vice President Mike Pence threatened China yesterday that there won’t be a trade deal if violence is used to suppress protests in Hong Kong. This spooked the stock market yesterday, sending the Dow into a tailspin, as the raging trade tensions between the two countries continue to hurt the U.S. economy.

Dow futures swing as the economy remains on the edge

Dow Jones Industrial Average futures slipped to 26,757 points at 4.51 am ET. The Dow showed initial promise, rising to 26,804 points at 3.01 am ET, getting close to yesterday’s close of 26,805 points. At 5.25 am ET, the Dow was swinging up once again and rose to 26,774 points. S&P 500 futures were up 0.07 percent, while the Nasdaq Composite futures also increased by 0.11 percent.

Dow Jones Industrial Average futures are trading tentatively Friday as macro challenges threaten to derail the economy. | Source: Yahoo! Finance

A cloudy day ahead for the stock market

The U.S. stock market ended Thursday on a negative note thanks to Vice President Pence. Though earnings reports were generally positive, barring Amazon, a common theme was that the companies expected the protracted trade tensions to impact their outlook.

Industrial conglomerate 3M – a key Dow component – had to slash its full-year earnings outlook, blaming a challenging macroeconomic environment. The macroeconomic challenges look all set to continue and hurt the U.S. economy as the Trump administration doesn’t seem inclined to find a resolution to the trade war.

The Commerce Department revealed yesterday durable goods orders were down 1.1 percent in September. This is the sharpest decline seen in four months. This is another sign of a slowing economy as a drop in durable goods orders means that items such as vehicles, machines, and airplanes are witnessing weak demand.

Another piece of alarming data came from the housing market, where new home sales fell in September and prices crashed. All of this indicates that the Dow runs the risk of closing the week on a tepid note, though the Federal Reserve could step in and become a savior.

Goldman Sachs estimates that there is a 95% probability of the Fed slashing interest rates once again next week. But whether that will be enough to give the slowing economy a shot in the arm remains to be seen.

The October consumer sentiment data is due out on Friday at 10 am ET, and it remains to be seen if the reading jumps as economists expect. A poll of economists by Dow Jones predicts consumer sentiment to increase to 96 as compared to September’s reading of 93.2. Meanwhile, Verizon is set to report earnings before the bell.

A positive consumer sentiment reading and progress on Verizon’s 5G roll-out could positively impact the Dow today. But if the numbers are not according to expectations, expect the stock market to dive.

This article was edited by Samburaj Das.

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Harsh Chauhan @techjunk13

Harsh covers tech, gaming, cryptocurrencies, and other financial topics on CCN since 2019. He has also written for other reputed publications such as The Motley Fool, TheStreet, and Seeking Alpha, and gets regularly featured on Yahoo! Finance. Harsh is based out of Indore, India. You can follow him on Twitter @techjunk13 or email him at harsh.chauhan(at)outlook.com.