The Dow Jones wobbled on Thursday as anticipation of a Chinese crackdown in Hong Kong prompted the US Senate to press ahead with a unanimous bipartisan effort to pass a law in support of the anti-government protestors.
Given the precarious nature of trade talks, this is terrible news for both Donald Trump and the Dow, as it reduces the probability of a trade deal passing anytime soon.
All three of the major US indices remained virtually unchanged, as the Dow Jones Industrial Average, Nasdaq, and S&P 500 all bounced between gains and losses.
Shortly before the closing bell, the Dow had dipped 16.81 points or 0.06% to 27,766.78.
The Nasdaq slid 0.06%, but the S&P 500 ticked 0.01% higher to round out a mixed day on Wall Street.
The cautious move from risk assets was confirmed by a decline in Treasury yields, and money flowed into bonds and gold.
Investors appear to be growing tired of waiting for a trade agreement, with multiple reports emphasizing deadlock and a partial trade agreement looking more and more elusive.
Even a basic farm goods purchase increase seems impossible to secure, and the probability of a comprehensive agreement is unquestionably dropping.
Nevertheless, the Dow Jones has been resilient to trade war uncertainty, focusing on robust earnings and trusting that Trump is going to secure some kind of deal ahead of the 2020 election.
However, with Senator Marcio Rubio leading a bipartisan charge to pass a pro-protestor Hong Kong bill in Congress, a firebomb has been thrown into the already tense situation between President Trump and President Xi.
An adverse reaction from the Dow would be unsurprising, given that many investors expect no further escalations in the trade war, a forecast that may have been too rosy.
Economic data out of China have been closely scrutinized over the last few months, with plenty of evidence that Trump’s trade war is starting to bite domestically.
A miserable industrial production figure Wednesday night demonstrated this more clearly than ever. It remains to be seen how resilient US stock indices like the Dow can be if a significant engine of global growth like the Chinese economy continues to slow.
Reacting to last night’s economic data, ABN AMRO senior economist Arjen van Dijkhuizen confirmed the view that China and the US both have compelling reasons for making a trade deal, but that doesn’t mean one is going to happen any time soon.
The latest macro data suggest that not only the US but also China has a clear incentive to at least put an end to the tariff tit-for-tat, with new US tariffs due on 15 December without a short-term deal. Uncertainties remain, however, for instance, on how many rollbacks on existing tariffs could be agreed on and under what conditions (such as an enforcement mechanism).
Given that both parties remain wide apart on some fundamental issues, a comprehensive deal still looks out of sight for now, and strategic tensions between the two will likely linger.
It could have been a miserable day in the Dow 30, as the market punished Cisco for posting a worse than anticipated earnings release. As a result of the selling, CSCO lost 7.6% and is now up just 3% on the year, lagging the Dow Jones by 15%. The stock is now in danger of becoming the fourth member of the index to slip into the red, alongside 3M, Pfizer, and Walgreens.
Cushioning the index from a heavy blow, Boeing stock rallied over 1.5%, even though the Southwest pilots union suggested they feared that the company might be rushing the 737 Max jet back into service too fast.
Disney gave back some of Wednesday’s sizable gains after a banner first day for Disney+, likely due to some profit-taking after the hotly-anticipated release.
Despite the relatively mild slip in the Dow, it is worth noting that two-thirds of the 30 DJIA stocks were in the red, including Apple, which posted a 0.6% loss after a rare bearish downgrade from a prominent Wall Street analyst.
Last modified: September 23, 2020 1:17 PM