The Dow slipped around 70 points on Monday as risk appetite soured and two core stocks - Apple and Boeing - suffered big losses.
It was a weak opening session for the Dow Jones on Monday, as a moderate decline heralded a cautious tone from the stock market.
Behind these losses is the December 15th tariff deadline – which is approaching quickly – alongside the Federal Reserve’s meeting on Wednesday, where FOMC voters are unanimously expected to keep interest rates on hold.
The Dow Jones was the worst-performing of the three major US stock market indices, down 0.25% relative to the S&P 500 and Nasdaq’s ~0.2% losses. At last check, the Dow had fallen 69.04 points to settle at 27,946.02.
Small losses in the equity markets saw the price of gold trade sideways, while crude oil remained mostly flat on the day.
Donald Trump’s trade war with the Chinese government continues to dominate the outlook for the Dow. At the end of this week, fresh tariffs come into effect on both sides, and analysts are mostly concerned about the negative impact this will have on the stock market.
It is not all pessimism on Wall Street, however, as there are still bulls out there who don’t expect a significant shock from rising import taxes. There is also the possibility that Trump and Xi make a last-minute agreement, but things have not been trending in that direction.
With the 2020 election about to come sharply into focus, the president has been touting his vibrant economy on Twitter.
It remains to be seen if this will force his hand to support the record-setting Dow, or if he trusts his base to back him even if the US economy starts slowing because of a prolonged trade war next year.
Impeachment proceedings are not proving to be a serious consideration for the Dow Jones, even as the probability of Trump’s removal now sits at fresh highs of 90%. The reasoning for this is that while the Democrat-controlled House might impeach the president, the Senate is firmly in Republican hands. This political arrangement makes Trump’s removal extremely unlikely.
The Federal Reserve’s FOMC meeting is not expected to rock the boat this week with stock markets trading near record highs in the US. Wall Street is very confident that Jerome Powell will keep interest rates on hold, with Fed funds futures pricing this outcome at a 99.3% chance.
Economist James Knightley at ING reiterated this view with a preview of Wednesday’s press conference, predicting a pause from the Fed accompanied by the same “data dependent” message.
Individual Fed speakers have reinforced the message that there needs to be a “material” change in the economic outlook for them to implement further rate cuts. Friday’s remarkably strong jobs report confirms that this week’s decision will result in a “no change” outcome with the press conference emphasising the data dependency for future decision making.
Longer-term, ING is still anticipating more interest rate cuts from the FOMC. Looking beyond recent jobs data, Knightley does see risks lurking under the surface for the domestic economy as capital expenditure trends continue to point lower.
It was a cautious day of trade in the Dow 30 to start the week, as the majority of members slipped into the red.
Home Depot (HD) stock was a rare bright spot, rising almost 1.35%. Cisco (CSCO) was the only other member of the Dow Jones pushing for a 1% rally, but it slipped dramatically late in the day to a post 0.3% gain.
Things could have been much worse for the Dow, considering that two of its most essential stocks, Boeing (BA) and Apple (AAPL), were off as much as 2% at their lows. Disney was also posting a heavy 0.95% loss.
Boeing is the most heavily weighted stock in the index, so its struggles (-0.88%) almost guaranteed a down day for the index. In the headlines for BA was yet more bad news surrounding a potential fine from the FAA for another safety violation.
Apple stock (-1.3%) could be in for a rough week if December’s upcoming tariffs are not removed. Each day that passes ahead of the looming deadline is likely to see investor concerns mounting.
Last modified: September 23, 2020 1:20 PM