U.S. stocks suffered their worst single-day drop since Jan 3 on Monday after China’s finance ministry announced retaliatory tariffs on U.S. products. The three major benchmarks ended in negative territory. Meanwhile, in an interview with Fox News, Larry Kudlow acknowledged that any escalation in trade war between the two countries would result in losses for “both sides.”
The Dow Jones Industrial Average (DJI) decreased 2.4%, to close at 25,324.99. The S&P 500 decreased 2.4% to close at 2,811.87. The tech-laden Nasdaq Composite Index closed at 7,647.02, losing3.4%. The fear-gauge CBOE Volatility Index (VIX) increased almost 18% to close at 19.27. Decliners outnumbered advancers on the NYSE by a 6.05-to-1 ratio. On Nasdaq, a 6.52-to-1 ratio favored declining issues.
How Did the Benchmarks Perform?
The Dow tanked 617.4 points to close in the red, registering its second-worst daily decline for the year. An escalation in the trade conflict led to a broad-based decline in shares of trade-sensitive stocks.
Shares of Caterpillar CAT, Apple AAPL and Boeing BA dropped 4.6%, 5.8% and 4.9%, respectively and weighed on the 30-stock index. Each of these stocks carry 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 tumbled 69.5 points to end in negative territory. This marked the S&P 500’s worst daily decline since Jan 3. Of the 11 major sectors of the S&P 500, nine ended in red, with technology leading the advancers. The Technology Select Sector SPDR Fund (XLK) decreased 3.8% on Monday. This marked the broader index’s worst one-day dip since early January.
Meanwhile, the Nasdaq nosedived 269.9 points to close in the red. This marked the tech-laden index’s biggest single-day drop for 2019. Shares of Microsoft MSFT dipped almost 3% and weighed on the Nasdaq.
Stocks came off session lows following President Trump’s address to reporters from the Oval Office on Monday afternoon that he had not made a decision about slapping tariffs on the remaining $300 billion worth of Chinese goods. He was in a meeting with Hungarian Prime Minister Viktor Orban and also stated that would be meeting Chinese President Xi Jinping in June at a Group of 20 summit.
China to Retaliate with Tariffs on U.S. Goods
The Chinese Finance Ministry stated on May 13 that China would increase tariffs on $60 billion worth of U.S. goods in retaliation to United States’ decision to raise tariffs on Chinses products. Following the end of the deadline on May 10, the United States increased tariffs on $200 billion Chinese goods at 12:01 Eastern Time.
The import taxes on these goods were raised from 10% to 25%, escalating the trade war between both the countries. The United States alleged that China had reneged on commitments made during earlier negotiations.
Meanwhile, China stated that it will increase tariffs on about 5,000 U.S. products to 25%. Further, import duties on certain other products would be increased to 20%. The Asian giant also stated that these duties will be increased to the stated levels from the earlier rate of 10% and 5%. Further, these duties target farm products such as peanuts, sugar, wheat, chicken and turkey.
Trump voiced his dissatisfaction on bilateral talks throughout last week in a series of tweets. On Friday morning, Trump tweeted that the administration was considering imposing a tariff of 25% on the remaining $325 billion worth of goods that China exports to the United States.
Kudlow Says Tariffs on China to Hurt Both Parties
In an interview on Fox News on May 12, White House economic adviser Larry Kudlow stated that both the United States and China would bear the brunt of an escalation in its trade conflict with China. Meanwhile, Kudlow also stated that China would suffer losses as result of such tariffs. He said that impact of these tariffs on the U.S. economy would be negligible.
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