Dow Winces After WSJ Exposes US-China Trade Deal Deadlock

• The Dow Jones fell from its record high as investors reacted to a Wall Street Journal report that US-China trade talks had stalled.
• It has been a banner day for Disney after the initial success of Disney+, which had initially driven the stock market to a new record.
• China’s reluctance to purchase agricultural goods, alongside an escalating crisis in Hong Kong, is significantly worsening the outlook for the Dow.

The Dow Jones Industrial Average zoomed to a record high on Wednesday. The index was lifted by a stunning midday rally from Disney, which recovered from an early loss after news broke that 10 million people had signed up for the new Disney+ service on just the first day.

Fed Chair Jerome Powell was upbeat about the outlook for the economy and did little to move the Dow with an extremely measured testimony.

Unfortunately, the stock market was roiled late in the day by a report that crucial components of the phase one trade deal continue to pose a significant hurdle.

Dow Jones Falls from Record High as Wall Street Fears Trade Talk Stagnation

It was a mixed day in the three major US stock market indices, with the Dow Jones leading the way over the Nasdaq and S&P 500.

At last check, the Dow had gained 80.35 points or 0.29% to trade at 27,771.84. The index had soared as high as 27,806.40 earlier in the session, but it plunged as much as 100 points in mid-afternoon trading.

The Nasdaq declined 0.09%, while the S&P 500 clawed back from losses to edge 0.05% higher.

A sizeable rally in commodity prices also ensued. The price of gold jumped almost 1% amid the sudden pressure on the Dow.

Trump’s trade war with China appears to have settled into an eerie period of uncertainty, and the stock market is clearly still nervy about the lack of progress. The Wall Street Journal’s report that China is reluctant to purchase US farm goods drove this home, given that Chinese agricultural purchases were at the root of the Trump administration’s rumored plan to remove tariffs.

Surprisingly, escalating violence in Hong Kong continues to have a limited impact on the Dow Jones, despite one of the world’s most important financial centers dipping into chaos and recession. In addition to the direct economic consequences, the crisis is cooling relations between the US and China, keeping the tail risk of tariff escalation on the table.

Inflation Data Remain Limited Threats to the Stock Market

For those investors worrying about the threat of rising inflation on the Dow Jones, Wednesday’s CPI data demonstrated that inflationary pressures are there, but remain steady.

Responding to the economic report, analyst Morten Lund at Nordea Markets said that he believes that the impact of the trade war continues to be negligible in affecting the vital US consumer, as price pressure remains subdued. He wrote,

The October numbers did not indicate that the recent increase in tariffs on Chinese goods had a material impact. Hence, core goods declined overall with “vulnerable” sub-components such as clothing and household furniture also declining. Thus, US consumers still appear to be fairly shielded from higher US tariffs on imported Chinese goods.

Adding,

We partly attribute this to a strong USD and partly that tariffs have probably mainly hit intermediary goods. Hence, the spillovers from tariffs to consumer prices are a matter of substitution effects and price elasticity.

This viewpoint confirms what investors have been seeing in the earnings reports of several Dow giants like Nike and Apple, both of which have expertly navigated the trade war with consistently strong sales.

Dow 30 Stocks: Disney Soars on Massive Subscriber Haul

It was a positive day for the Dow 30 on Wednesday, as a monster 6.7% rally in Disney (DIS) stock helped to propel the index higher. Although Disney was struggling early in the trading session, the company reported that it had signed up 10 million new subscribers on its first-day offering of Disney+, its new streaming service.

Putting the excessive demand in perspective, Netflix’s total paid subscriber base is 151 million, which it has gradually acquired since its inception 22 years ago. Disney just added 6% of that in 24 hours. Unsurprisingly, Netflix’s stock was down 2.5% on the day, despite inking a significant deal with Nickelodeon.

Apple stock was 0.8% higher after announcing a revamped MacBook Pro ahead of what investors clearly hope could be another stellar Thanksgiving period.

Nike stock rose more than 1.8%. The company announced that it was no longer planning to deal directly with Amazon after pulling its products from the online retail giant.