Stocks opened lower Wednesday, as tensions between the U.S. and China over Hong Kong protests weighed on efforts to complete a trade deal, and after a weak retail sales report offset better-than-expected corporate earnings reports.
What are major indexes doing?
The Dow Jones Industrial Average DJIA, -0.15% opened 44.7 points, 0.2%, lower, opening at 26,980.09, while the S&P 500 SPX, -0.24% was off nearly 6 points at the open, 0.2% lower, to start trading at 2,989.74. The Nasdaq COMP, -0.39% opened about 29.8 points, 0.4%, lower, at 8,118.8.
On Tuesday, the Dow rose 237.44 points, or 0.9%, to end at 27,024.80, while the S&P 500 advanced 29.53 points, or 1%, to close at 2,995.68, leaving it 1% away from its all-time closing high of 3,025.86 set on July 26. The Nasdaq Composite finished at 8,148.71 after gaining 100.06 points, or 1.2%.
What’s driving the market?
China threatened to retaliate over a series of bills backing pro-democracy protesters in Hong Kong that unanimously passed the House of Representatives late Tuesday. A spokesman for China’s foreign ministry said that if the legislation were to become law “it wouldn’t only harm China’s interest in China-U. S. relations, but would also seriously damage U.S. interests” and that China “will definitely take strong countermeasures in response to the wrong decisions by the U.S. side to defend its sovereignty, security and development interests.”
“We think it’s possible this bill will push China into a public show of defiance against U.S. ‘interference,’” which could mean a crackdown on Hong Kong protesters, said Jasper Lawler, head of research at London Capital Group, in a note.
“Under that scenario, markets would be relieved if China’s retaliation kept the trade pact intact. However, higher political uncertainty in Hong Kong would be a sizable downside risk,” Lawler said.
See: China vows ‘strong countermeasures’ in wake of U.S. bill supporting Hong Kong protesters
The Wall Street Journal reported there are questions about the amount of U.S. agricultural products China will actually buy as part of the tentative trade deal announced last week.
In economic data, a report on U.S. September retail sales missed expectations, falling for the first time in seven months. Sales fell 0.3%, while economists surveyed by MarketWatch, had looked for a 0.3% increase. Shortly after that release, Fed Funds Futures showed a 90% likelihood that the central bank would cut interest rates at its October meeting, up sharply from 78% on Tuesday.
“Today’s retail sales miss pretty much seals a 25-basis point rate cut at the end of the month,” said Edward Moya, OANDA senior market analyst
The weak U.S. retail sales data added to concerns over the potential for a recession while the IMF warned that the U.S. stockmarket was overvalued as belief in a Federal Reserve rescue for the economy is allowing investors to ignore tensions over international trade policy,
Stocks were buoyed Tuesday by a largely well-received round of results from corporate heavyweights, including UnitedHealth Group Inc. UNH, -1.32% and JPMorgan Chase & Co. JPM, -0.07%.
Which stocks are in focus?
Shares of Bank of America Corp. BAC, +2.22% were higher after the company reported third-quarter profit that topped Wall Street expectations.
Other earnings expected ahead of the bell Wednesday include Abbott Laboratories ABT, -2.01%. After the close, results are expected from streaming-video company Netflix Inc. NFLX, -0.27%, computing giant International Business Machines Corp. IBM, -0.70%, metals maker Alcoa Corp. AA, +0.05% and railroad CSX Corp. CSX, -0.03%.
Shares of United Airlines Holdings Inc. UAL, +1.45% were higher after third-quarter profit reported after Tuesday’s close topped expectations and the company raised guidance for the year.
Shares of MGM Resorts International MGM, -1.90% may be in focus after it announced late Tuesday that it would sell its Circus Circus casino resort in Las Vegas and a huge interest in its Bellagio resort.
Three major drug distributors are in talks to pay $18 billion to settle litigation brought by state and local governments blaming them for fueling the opioid crisis, The Wall Street Journal reported, potentially offering a resolution to lawsuits that have shaken the pharmaceutical industry.
That report said that three distributors — McKesson Corp. MCK, +6.09%, AmerisourceBergen Corp. ABC, +5.52%, and Cardinal Health Inc. CAH, +4.76% would collectively pay $18 billion over 18 years according to the deal currently on the table. Johnson & Johnson JNJ, +2.19% is also involved in the talks to contribute additional funds, the report said.
What’s on the economic calendar?
Data on August U.S. business inventories and an October reading of a home builders index are due at 10 a.m. Eastern. The Fed’s Beige Book collection of anecdotal economic information gathered by regional Fed banks is due at 2 p.m.
Chicago Federal Reserve Bank President Charles Evans is scheduled to deliver a speech at 10:45 a.m. Eastern, while Fed Governor Lael Brainard is slated to speak at 3 p.m. Eastern.
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