- The Dow Jones lost its gains to trade flat on Monday as President Trump dealt with multiple political setbacks, both foreign and domestic.
- Trump may be unable to deliver on his “phase one trade deal,” raising the risks for the stock market of the mid-December tariffs being implemented.
- ABN AMRO forecasts a miserable GDP reading in Q4, which may haunt an elevated Dow.
The Dow Jones fell sharply from its daily highs on Wednesday after Reuters reported that a trade deal between the US and China might not be signed until December. The stock market fell as Dow bulls were forced to reprice their expectations for the imminent “phase one deal” Trump had promised in October.
Dow Flatlines; S&P 500 and Nasdaq Fail to Do Any Better
With the closing bell just minutes away, the Dow Jones Industrial Average had virtually flatlined, dipping 1.55 points or 0.01% to 27,491.08.
Among the major US stock indices, the Nasdaq was the worst performer, down 0.31%. The S&P 500 (-0.03%) tracked closely with the Dow.
European stock markets cheered some better than expected PMI readings, helping cushion US equities.
Crude oil plummeted after the announcement of another potential delay in the trade war, while the gold price rallied 0.6% in an apparent move from risk.
Dow Might Have to Deal with December Tariffs After All
One of the principal factors hurting the Dow was the concern that the comprehensive tariffs planned for this winter may now go into effect after all.
This defies the long-running theme of Trump’s trade war de-escalation, suggesting that China is hesitant to grant the US president any more concessions. Stephen Mnuchin has implied that the tariffs are going to be implemented in the absence of a deal.
Wednesday shaped up to be a doubly concerning day for President Trump. He was also forced to deal with the fall-out of historic losses for Republicans in Virginia, while pro-Trump Kentucky will soon have a Democrat as governor. Unperturbed, Trump continues to tout the stock market records, which remain his best bet on being reelected.
Given that many stock market strategists believe a left-leaning outcome to the 2020 election could be terrible news for the Dow Jones, it was curious to see a former-swing state becoming fully blue not have a more significant impact on stocks.
Stock Market Could Have to Deal With a Rocky 4th Quarter
On the data front, the recent jobs report seemed to confirm the view that the Federal Reserve is pausing its easing cycle.
For Dow bulls hoping that the storm clouds have passed for the US economy, Bill Diviney, Senior Economist at ABN AMRO, had the following words of caution on the outlook for jobs and growth heading into the end of the year:
“We expect payrolls growth to continue softening in the coming months. With private consumption growing at well-above trend rates in Q2 (+4.6%) and Q3 (2.9%), we therefore expect payback in the fourth quarter, with overall GDP growth potentially dipping below 1.0% annualised. Such a weak [outcome] would come as a reality check to markets that have grown accustomed to a resilient US economy, and could even raise fears of a recession once again.”
Dow 30 Stocks: Apple & Boeing Lower, Big Oil Crushed
There was not a tremendous amount of volatility in the Dow 30 on Wednesday, but the negative tone was evident in the index’s most significant stocks. Apple lost 0.21%, while heavily weighted Boeing was down 1.2%.
Exxon Mobil (-2.24%) and Chevron (-1.41%) were among the biggest losers in the Dow Jones. These two major oil companies struggled in the wake of the sudden sell-off in the oil price.
Walgreens (-2.65%) was the worst-performing stock in the index. News of a possible $70 billion buyout initially sent WBA shares soaring at the open, but they were rudely brought back down to earth by a big slide midday.