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Market Futures Plunge Ahead

Zacks Equity Research

U.S. stock index futures plunged ahead of the market open on Monday after the trade war between the United States and China intensified. The Dow dropped more than 350 points and S&P 500 futures were trending at least 40 points lower after China retaliated strongly to Trump’s decision to impose a 10% tariff on an additional $300 billion worth of Chinese imports.

Chinese authorities hit back on Monday by asking its state-owned enterprises to cease all U.S. agricultural imports immediately. The world’s second largest economy also allowed the yuan to hit its lowest point in more than a decade, indicating that trade tensions are likely to increase further in the days ahead.

Among notable earnings released before the market opens are meat products giant Tyson Foods TSN, WEC Energy Group WEC and Loews Corporation L. Tyson’s fiscal third-quarter earnings matched estimates while WEC Energy and Loews exceeded second-quarter earnings expectations. 

Benchmarks closed in the red on Friday to post their worst single-day decline in a month. President Trump’s abrupt decision to impose additional tariffs on Chinese products and services didn’t go down well with investors. Officials from the country’s finance ministry pledged to retaliate against Trump’s move.

Such developments on the trade war front dampened the investor sentiment so much so that market watchers brushed aside the release of stellar economic data.

The Dow Jones Industrial Average decreased 0.4%, to close at 26,485.01. The S&P 500 decreased 0.7% to close at 2,932.05. The tech-laden Nasdaq Composite Index closed at 8,004.07, losing 1.3%. The fear-gauge CBOE Volatility Index (VIX) increased 17% to close at 20.91. Decliners outnumbered advancers on the NYSE by a 2.24-to-1 ratio. On Nasdaq, a 2.25-to-1 ratio favored declining issues.

The Dow dipped 98.4 points to close in the red due to broad-based losses. Shares of Boeing BA dipped 1.8% and weighed on the 30-stock index. The stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The S&P 500 dropped 21.5 points to end in negative territory for the fifth straight session. Of the 11 major sectors of the S&P 500, nine ended in the red, with technology stocks leading the decliners. The Technology Select Sector SPDR Fund (XLK) decreased 1.6% on Friday. Further, second quarter corporate earnings from S&P 500 companies are expected to decline for the second consecutive quarter for the first time since 2016.

Meanwhile, the Nasdaq slid 107.1 points to also close in the red. Shares of Facebook FB declined 1.9% and weighed on the tech-heavy index.

President Trump had announced in a series of tweets on Aug 2 that a fresh round of tariffs would be imposed on Chinese goods. He stated that the United States would levy 10% tariffs on the remaining $300 billion worth of Chinese goods as well as products. Such developments had rattled the markets.

On Aug 2, a spokesperson from China’s foreign ministry announced at a press meeting that China would take the required action against America’s abrupt decision of imposing additional tariffs.

Further, Zhang Jun, China’s new brand ambassador to the United Nations called Trump’s decision as “an irrational, irresponsible act.” He also stated that China’s stance on the trade issue was “clear” and that the country was willing to hold talks with America if the latter wished to. At the same time, he stated that China would “fight” if the United States wanted a conflict.

Such developments weighed on the broader markets and experts opine that a worsening trade war would spread from the manufacturing sector to the consumer goods sector.

On the economic data front, the U.S. economy added a total of 164,000 jobs in July, slightly below the consensus estimate of 165,000 jobs. Furthermore, the unemployment rate remained at 3.7%, near its 50 year-low, even as a greater number of people entered the labor force in search of jobs.

Meanwhile, U.S. factory orders rose 0.6% in June, slightly lower than the consensus estimate of 0.7%.

For the week, the Dow, the S&P 500 and the Nasdaq fell 2.6%, 3.1% and 3.2%, respectively. The Dow posted its biggest weekly decline since May 31 and the S&P 500 posted its biggest weekly dip since Dec 21. Meanwhile, it was the Nasdaq’s biggest weekly loss since Dec 21.