It looked like it could have been a bloodbath, but by the end of trading Monday, investors largely shrugged off President Donald Trump’s trade threat to China over Twitter.
Stocks finished lower but pared much of their earlier losses. But futures slid again in after-hours trading after media reports suggested that tariff hikes were on the way.
“We have watched these blusterings in real time before. Trump’s tweets have a tendency to reverse themselves,” said Jamie Cox, managing partner for Harris Financial Group. “We have all been conditioned to wait and see.”
The Dow Jones Industrial Average dropped 66 points, or 0.25%, to end at 26,438 on Monday. The S&P 500 index lost 13 points, or 0.45%, to close at 2,932. The tech-heavy Nasdaq fell almost 41 points, or 0.5%, to finish at 8,123.
Reports Monday after the market closed that U.S. Trade Representative Robert Lighthizer said the U.S. would enact tariff increases on Friday again sent stock futures down. Dow futures tumbled almost 300 points or 1.21% after the market closed, while S&P futures lost 1.21%.
Trump tweets on trade
On Sunday, Trump said in a tweet that he would raise tariffs to 25% from 10% on $50 billion in tech imports and $200 billion on other imports, starting Friday. He also suggested imposing a 25% duty on another $325 billion of imports that aren’t currently taxed.
He doubled down on his trade threats in an early tweet Monday.
“The United States has been losing, for many years, 600 to 800 Billion Dollars a year on Trade. With China we lose 500 Billion Dollars. Sorry, we’re not going to be doing that anymore!” he wrote.
Market concerns: Dow futures drop about 500 points as China ponders skipping trade talks after Trump threat
Buffett’s insights: 7 big thoughts from Warren Buffett during annual Berkshire Hathaway meeting
His tweets come ahead of a trade discussion between the countries that was supposed to resume on Wednesday. The Wall Street Journal reported that China was considering pulling out, citing unnamed sources. But a Chinese Foreign Ministry spokesman, Geng Shuang, said Monday in Beijing that the talks were still on.
Trump’s threat comes after months of positive steps on trade discussions, with White House officials saying that negotiations were progressing toward an agreement.
“The reaction overnight and this morning proved to me that the markets had priced in a successful or at least substantive trade resolution,” said Ernie Cecilia, chief investment officer at Bryn Mawr Trust.
In a note Monday, UBS analysts put the risk of a breakdown in trade talks at 30%, which could cause stocks to decline 10% to 15% and U.S. earnings to contract 5%.
“However, we are not there yet,” wrote Mark Haefele, UBS global wealth management’s CIO, and Min Lan Tan, head of UBS GWM’s Asia Pacific investment office. “Our base case remains for a negotiated trade settlement. … If this were to eventually materialize, Monday’s pullback in valuations could represent a buying opportunity.”
Most vulnerable sectors
Tech, industrials and commodities companies were hardest hit on Monday.
Micron Technology Inc. fell 2.77% to end at $42.13 per share. Advance Micro Devices Inc. stock ended down 2.83% at $27.42.
Shares of DowDupont fell 3.64% to finished at $33.62, while Freeport-McMoRan stock slid 1.92% to end at $11.72. Shares of Caterpillar lost 1.65% to $136.76.
Trump’s comments also rocked global markets, especially in Asia. The Shanghai Composite index closed down 5.6% at 2,906.46 after plummeting more than 6% earlier in the day. Hong Kong’s Hang Seng index lost 2.9% to end at 29,209.82.
In Europe, Germany’s DAX fell 1.01% to 12,287, while the CAC 40 in France slipped 1.18% to 5,484. Markets in London were closed for a bank holiday.