Stocks pared earlier losses in afternoon Monday trading following an initial drop on President Donald Trump’s threats on Sunday to hike tariffs on Chinese imports. The comments initially worried investors that trade tensions between the two countries were escalating.
“Trump’s China comments ruffled investors’ feathers as this continues to be the biggest risk factor in the market, especially for tech stocks,” said Daniel Ives, managing director of equity research for Wedbush Securities. “But I think investors think that the bark is worse than the bite, that this is more negotiation tactic rather than a structural change in U.S.-China negotiations.”
“That’s why we’ve seen stocks recover some [from the open],” Ives said.
The Dow Jones Industrial Average dropped 185 points, or 0.7%, to 26,320 in afternoon trading. The S&P 500 index fell 23 points, or 0.78% to 2,923. The tech-heavy Nasdaq lost 74 points, or 0.9%, to 8,090.
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.
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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.
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.”
Tech, industrials and commodities companies were hardest hit on Monday.
Micron Technology Inc., Advance Micro Devices Inc. and Applied Materials Inc. all were down more than 3% in afternoon trading.
Shares of DowDupont fell 3.14%, while Freeport-McMoRan stock slid 2.18%. Shares of Caterpillar and 3M were almost 2% lower.
Trump 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.