Iran threats destabilized the Dow Jones on Tuesday, while strong trade balance data suggested Trump is winning the trade war.
The Dow Jones suffered a triple-digit loss on Tuesday. Stocks slipped in the wake of Iran threatening that it had 13 ways to inflict a“historic nightmare” on the United States in response to the killing of Qasem Soleimani.
It could have been a lot worse for the Dow 30, had Boeing not posted an impressive rally.
Among the three major stock market indices, the Dow Jones Industrial Average was the laggard.
The Dow fell 105.73 points or 0.37% to 28,597.65. The Nasdaq crept 0.06% into the green, while the S&P 500 recorded a 0.23% loss.
Once again, there was plenty of volatility in the commodity sector, and crude oil (-0.95%) continued to fall from its recent peak.
The price of gold extended its impressive climb with a 0.25% rally.
Digital asset bitcoin is also on the march higher, as a 7% rally carried it past the $8,000 handle.
Focus on geopolitical tensions has pushed the US-China trade war to the back of most people’s minds.
Still, today’s economic data show that Dow bulls cannot afford to ignore the politically sensitive US trade balance. Today’s reading shows a significant contraction, suggesting that Donald Trump’s efforts to narrow the deficit with China are paying dividends.
Unfortunately, this is not all good news for the Dow Jones, as ING economist James Knightley outlined in a recent report.
Other countries are substituting for the reduced imports from China, suggesting that Trump will have to double-down with other trade wars, as Knightley states:
Looking geographically, the numbers suggest that President Trump’s tough stance with China has paid dividends…
However, we continue to see a significant amount of substitution (although not be as much as the deficit with China has shrunk) given the US deficits with both Mexico and the EU will hit new all-time highs – the deficit with the EU is on course to increase by US$8bn while the deficit with Mexico is set to increase by US$21bn.
Consequently, the EU is likely to remain nervous that President Trump could focus more of his attention on perceived European trade indiscretions in 2020.
Should the US president pursue a trade war with Europe, it seems likely that markets would react cautiously, as they did when Trump first implemented his tariffs on China.
But given that the White House can now argue their tactics are working, Wall Street might be more willing to give them the benefit of the doubt.
It could have been a very rough day for the Dow 30, as sizable losses in key stocks weighed on the index.
Bucking a recent trend, the Dow Jones’ most crucial stock – Boeing (NYSE: BA) – posted an impressive 1% rally. This helped keep losses subdued.
Disney (NYSE: DIS) was back on track with a 0.12% gain after struggling to start the week.
Most of the damage was due to large losses in oil giants Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX), which plunged around 1.5% on the day. Chevron was the worst hit, after chaos in the Middle East forced them to move employees out of an increasingly unstable situation in Iraq.
Apple (NASDAQ: AAPL) was very quiet, sliding gently below $300 but seeing no ill effects from Ricky Gervais’ viral comments about the company’s supply chain at the Golden Globes.
This article was edited by Josiah Wilmoth.
Last modified: February 5, 2020 9:13 PM UTC