Stocks tumbled Friday as the U.S.-China trade war took a sharper turn, with President Donald Trump saying he’s ordering American companies to start looking for “an alternative to China,” while readying additional measures after Beijing imposed retaliatory tariffs on imports of U.S. goods.
Earlier, the major indexes flipped between modest gains and losses after Federal Reserve Chairman Jerome Powell left the door open for another interest rate cut in September in a widely anticipated speech in Jackson Hole, Wyoming.
How are the major benchmarks faring?
Stocks extended declines ahead of the closing bell. The Dow Jones Industrial Average DJIA, -2.66% was down 599 points, or 2.3%, at 25,653, while the S&P 500 index SPX, -2.84% dropped 73 points to 2,850, a 2.5% decline. The Nasdaq Composite index COMP, -3.11% shed 229 points, or 2.9%, to 7,762.
What’s driving the market?
Ahead of Friday’s open, China announced new tariffs of 5% and 10% on $75 billion in U.S. imports, set to go into effect in two tranches, on Sept. 1 and Dec. 15, respectively. The tariffs will be imposed on agricultural products, crude oil, small aircraft and cars among other goods. The Chinese government said that the move was in response to the Trump administration’s plans to institute 10% tariffs on $300 billion in Chinese imports, also in two stages and on the same dates, announced earlier in August.
See: Escalation in U.S.-China trade war threatens global economy, poses Trump re-election risk
The move drew a furious response from Trump, who tweeted that he had “hereby ordered” U.S. companies “to immediately start looking for an alternative to China.”
“We always see a selloff when we escalate tensions,” said Art Hogan, chief market strategist for National Securities, in a phone interview. “I would argue that this recent escalation is a different flavor of retaliation when you ‘hereby order’ companies to stop doing business.”
Market moves were also likely amplified by thin trading conditions typical of a Friday in August, Hogan said.
Trump also blasted Powell in a tweet for apparently not sounding a more dovish tone about monetary policy in his Jackson Hole speech:
The president branded Powell an “enemy,” taking the long-running tensions between the White House and the Federal Reserve — a traditionally adversarial relationship — “to a whole new level,” Hogan said.
In the speech, Powell was seen leaving the door open for another interest rate cut at the central bank’s next meeting Sept. 17-18, saying, “We have seen further evidence of a global slowdown,” since the Fed’s last meeting in July.
At the same time, he said “the U.S. economy has continued to perform well overall” while “ inflation seems to be moving closer to 2%,” the Fed’s goal for annual inflation. Low inflation was a main justification for cutting rates last month.
“It’s not too surprising that he was vague, and intentionally so,” said Randy Frederick, vice president of active trading strategies and derivatives at Charles Schwab. “He wants to be nimble and he doesn’t want the market to move on what he said.”
Fed funds futures markets indicate investors see the speech as mildly dovish. Prior to the speech, the market was pricing a 95.8% chance of one rate cut and a 4.2% chance of no cut. After the speech, the probability of at least a 25 basis-point cut rose to 100%, with the market showing a 5% chance of a 50 basis-point cut.
On the data the data front, new home sales in July fell 12.8% to an annual rate of 635,000 homes, below the median forecast of 650,000, according to a MarketWatch poll of economists.
Which stocks are in focus?
Shares of Foot Locker Inc. FL, -19.28% tumbled 17%, after the retailer reported second-quarter sales and profits that missed Wall Street expectations.
HP Inc. HPQ, -6.21% shares fell more than 7%, after the PC and printer manufacturer announced a Enrique Lores would assume the CEO role effective Nov. 1, along with third-quarter results that matched analyst expectations.
Salesforce.com Inc. CRM, +1.82% reported quarterly financial results late Thursday, showing revenue growth and earnings-per-share that beat Wall Street forecasts. The company’s stock rose 3.3%.
Shares of Intuit Inc. INTU, +1.04% rose 3.4%, following a release of better-than-expected fiscal fourth-quarter results Thursday evening.
Hasbro Inc. HAS, -9.08% announced plans late Thursday to acquire the British firm Entertainment One Ltd ETO, +31.94%, in a deal that values the company at $4 billion. The toy maker’s stock retreated more than 7%.
How are other markets trading?
The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, -5.98% fell 6.9 basis points to 1.533%%, while that of the 2-year note TMUBMUSD02Y, -6.63% fell 7.5 basis points to 1.523%
Stocks in Asia traded mixed overnight, as China’s CSI 300 000300, +0.72% rose 0.7%, Hong Kong’s Hang Seng Index HSI, +0.50% gained 0.5% and Japan’s Nikkei 225 NIK, +0.40% climbed 0.4%.
In Europe, stocks traded mostly lower, with the Stoxx Europe 600 SXXP, -0.78% losing 0.8%.
In commodities markets, the price of U.S. oil CLV19, -2.69% fell 3.1%, after China announced that U.S. crude oil would be subject to new tariffs. Gold prices GCZ19, +1.98% jumped 1.7% to $1,533.60 per ounce. The U.S. dollar fell, with the closely watched ICE U.S. Dollar Index DXY, -0.55%, a measure of the currency against a basket of six major rivals, down 0.4%.
Mark DeCambre contributed to this report.
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