The Dow Jones was unable to profit from the news of Donald Trump removing some tariffs on Chinese goods, as the president dashed hopes that he’d agree to a partial trade deal.
Meanwhile, Chinese trade negotiators canceled a visit with US farmers in Montana, spooking a stock market that was already pressured by more stringent sanctions on Iran.
Despite strolling toward moderate gains during the morning session, the Dow Jones Industrial Average quickly slid into decline after Chinese negotiators decided to cut their visit to the United States short.
At last check, the Dow traded at 27,032.09 for a loss of 62.70 points or 0.23%. The DJIA had earlier declined as much as 150 points.
Dow Jones bulls appear incapable of pushing the index to fresh highs, and the S&P 500 was also under pressure on Friday.
However, the Nasdaq was comfortably the worst performer of the three, nosediving 0.60% as investors considered research demonstrating that IPOs are at their least profitable mark since the dotcom bubble in 1999.
The US-China trade war remains the most important fundamental for the Dow Jones, and an insult to Trump’s key farming voter base in Montana could reverse the positive direction in which talks appeared to be headed.
Elsewhere, President Trump was asked at a press conference with the Australian PM if he was content with China merely agreeing to purchase more agricultural goods. Trump made it clear that he desires a full-fledged trade deal, not a partial agreement.
Trump even claimed that he was not desperate for a deal before the 2020 election. This stands in stark contrast to many analysts forecasts, and it would likely be a negative for the Dow Jones and (especially the Nasdaq) if true.
Confusing the outlook even more for the Dow Jones, the Federal Reserve’s Eric Rosengren spoke on Friday. The FOMC rebel confirmed his viewpoint that additional accommodation for the US economy is not needed. He said he is concerned about inflation and an equity bubble.
Rosengren’s view jars with those of many other central bankers who believe stock markets need some extra juice. China cut interest rates overnight, India is slashing taxes, and the Eurozone is diving deeper into negative rates.
For stock market bulls desperate for evidence of some respite in the trade war, it looks like the US will reduce its trade deficit with China to a seven-year low. However, deficits with other trade partners are worsening.
In the view of ING’s Chief International Economist James Knightley, US companies are still importing, just from other places.
“The US is on track to experience its smallest goods trade balance with China since 2012. However, the US goods deficit overall is not narrowing to anywhere near the same extent. Instead, the US deficits with Mexico and the EU look likely to hit new highs in 2019 while the deficits with Canada and the ‘rest of the world’ are on course to widen out versus 2018. This hints at some substitution of Chinese goods imports for imports from other countries.”
Ultimately, Knightley concludes that both China and the US are losing in the trade war.
“There has been a reduction in goods imports from China, but there has been an even bigger percentage decline in US exports of goods to China (as measured in US dollars). The net effect of the trade war is that both sides have been hurt.”
It was another mixed day for the Dow 30, as there were plenty of winners and losers in the index.
Microsoft slipped more than 1.2% after its impressive rally yesterday. As the excitement from the share buyback and higher dividend fade, a general lack of momentum in the stock market appears to be weighing on MSFT, which is up just under 40% on the year.
Another mega-cap tech stock up around 40% YTD is Apple, which also fell on the day (0.53%) in extremely cautious trade.
Boeing lost 1.2%, as the stock eased lower after a brighter performance over the last few weeks. Despite all the turmoil with the 737 Max, BA is still up 20% on the year.
The ever-volatile Walgreens was among the leaders for the index, bouncing 1.32%. Investors may have been excited by the news that the company is following Amazon’s lead and experimenting with drone delivery.
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Last modified: September 23, 2020 1:02 PM