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Dow Plunges 103 Points While Analysts Spar over Trade War’s Impact on US Stock Market

Last Updated September 29, 2020 11:51 AM
Josiah Wilmoth
Last Updated September 29, 2020 11:51 AM

Thursday’s closing bell couldn’t come soon enough for the US stock market, which plunged across the board and prevented the Dow from crossing the 26,000 point threshold.

Dow Recovers 80 Points But Still Sees Triple-Digit Loss

dow jones nasdaq S&P 500
The Dow (blue), S&P 500 (red), and Nasdaq (orange) pared losses before the closing bell but ended the day firmly in the red.

The Dow Jones Industrial Average plunged by 103.81 points for the day, falling 0.4 percent to 25,850.63. Losses were fairly evenly distributed throughout the stock market’s other two major indices as well, as the S&P 500 and Nasdaq dropped by 0.35 percent and 0.39 percent, respectively.

The market did pare losses in the minutes before the closing bell, enabling the Dow to recover by about 80 points from its early-afternoon low.

The CBOE VIX, also known as the stock market’s “Fear Gauge,” climbed 2.57 percent to 14.38, with 20 representing a normal level of expected volatility on a scale of 1 to 100.

Has a US-China Trade Deal Already been Priced in?

Weak economic data may have been to blame for today’s stock market pullback, but Wall Street continued to focus much of its attention on reports indicating that the United States and China had made progress toward signing a new trade agreement.

Many analysts have said that a trade deal is already baked into the stock market and that anything other than a clean end to the tariff war would send the Dow off a cliff.

However, contrarian analysts allege that this view does not account for trade war-associated losses that have already impacted the stock market and continue to prevent it from returning to its 2018 highs. They predict that a US-China trade deal, whenever it does arrive, will spark a new rally.

“With the market off its lows, a popular view is that the equity market has priced in all the good news already,” said Neil Dutta, head of economics at Renaissance Macro Research, in a note quoted in CNBC . “We are skeptical; the equity market only partially retraced the losses associated with trade tensions.”

Perhaps contrary to US President Donald Trump’s recent claim that he alone saved the Dow from a 10,000 point crash, Renaissance estimates that his administration’s trade war has stunted its sister index, the S&P 500, by a full 11 percent over the past five quarters.

“In other words, if not for all the negative trade news over the last 14 months, the S&P 500 would be about 11 percent higher,” Dutta said.

Stock Market Needs to Consolidate

dow jones stock market trade war
Some analysts say the Dow needs to enter a cooling off period before the stock market gets too heated. | Source: AP Photo / Richard Drew

On the other hand, Jefferies strategist Steven DeSanctis said that irrespective of the trade war’s influence, the US stock market is far too heated to sustain its present level.

Speaking with MarketWatch , he said that a pullback is “absolutely necessary” to stave off more severe correction later on.

“Anytime you see a big spike up, that’s generally met with a downtick. A 5% to 10% correction would be welcome, and it would be justified,” he concluded.

Featured Image from Shutterstock. Price Charts from TradingView.