The Dow Jones swung between gains and losses on Tuesday after Reuters broke the news that President Donald Trump Trump might not sign the “phase one” trade deal with China in Chile after all.
Adding to gravity on the US stock market, consumer sentiment missed expectations, while a weak performance from Apple also weighed on the Dow.
It was a day of mediocre moves in the stock market, as bulls appeared hesitant to take on too much risk ahead of the Federal Reserve’s interest rate decision on Wednesday. The Dow Jones Industrial Average fell 19.03 points or 0.07% to 27,071.69.
The S&P 500 was the top-performing index, though it also declined 0.04%, while the Nasdaq sunk 0.47% after weak performances from Alphabet (Google’s parent company) and Tesla.
Crude oil fell with the stock market, while the gold price was also under pressure despite a soft US dollar. In Europe, news that Boris Johnson would get a snap election in December after all saw the British pound trade higher and the FTSE 100 close 0.5% lower on the day.
Consumer confidence came in lower than analysts expected, and the reading was the worst in four months. Consumer sentiment may be being impacted to some extent by political instability. Consequently, it’s notable that Nancy Pelosi announced the next round of Trump impeachment proceedings with a vote. The Dow demonstrated no discernible reaction to this news.
There is no question that a significant portion of the Dow Jones rally has been thanks to the market’s optimism that President Trump will eventually declare a substantial de-escalation in the trade war with China. Writing for Jim Cramer’s “RealMoney,” Stephen Guilfoyle buys into this viewpoint that hope of a trade deal in Chile is driving the stock market.
“It has become apparent that Presidents Trump and Xi of the US and China respectively, are truly making an earnest effort to sign some kind of ‘phase one’ compromise when they meet in Chile in about two weeks. Conditions can only get better if they stop getting worse first. This is the fountain of global hopium.”
The prevalence of this optimism makes Reuters’ report that there may be no accord in Chile all the more worrying for Dow bulls. Another concerning development was the Trump administration’s desire to have direct control over where all cars are made. This would likely be unacceptable to the EU, and it raises the risk of escalating another front in the White House’s global trade offensive.
The Federal Reserve will meet tomorrow, and expectations remain high that Jerome Powell and the FOMC will provide some additional stimulus to shield markets from the shakier sectors of the US economy.
With a rate cut almost entirely priced into stocks, volatility will likely come from the accompanying statement and the committee’s outlook for the coming months. Not surprisingly, Donald Trump provided his usual dose of pressure to encourage the Fed to ease policy.
Putting the index on its back, the Dow Jones’ most heavily weighted stock, Boeing, rose 2.09%. The rally in BA stock came as CEO Dennis Muilenburg faced a grilling in Congress over the 737 Max disasters. Muilenburg’s optimism about the timetable for the 737 Max’s return to the skies appeared to win over investors despite the harsh tone from many on the congressional panel.