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Stock Market News For May 7, 2019

Zacks Equity Research

Wall Street closed lower on Monday as the trade conflict between the United States and China intensified.  All three major stock indexes ended in the red. However, markets recovered to some extent from steep decline in early hours' trade following news that the negotiation process is still going on despite an escalation in the trade spat.

 The Dow Jones Industrial Average (DJI) decreased 0.3%, to close at 26,438.48. The S&P 500 lost 0.5% to close at 2,932.47. Meanwhile, the Nasdaq Composite Index closed at 8,123.29, shedding 0.5%. The fear-gauge CBOE Volatility Index (VIX) increased 20% to close at 15.44, its highest closing in one and half months. A total of 6.45 billion shares were traded on Monday, lower than the last 20-session average of 6.62 billion.Decliners outnumbered advancers on the NYSE by a 1.45-to-1 ratio. On Nasdaq, a 1.28-to-1 ratio favored declining issues.

How Did The Benchmarks Perform?

The Dow closed in negative territory with 19 components of the 30-stock blue-chip index ended in red while 11 finished in the green. The index was down by 471 points at its intraday low. The S&P 500 also closed the day with losses.The Materials Select Sector SPDR (XLB) plunged 1.4%. Notably, nine out of eleven sectors of the benchmark index closed in red while two ended in the green. Moreover, tech-heavy Nasdaq Composite also closed in the red due to weak performance by trade-sensitive large-cap stocks.

Trade Tensions Escalate

On May 5, President tweeted that the U.S. government will increase tariffs from 10% to 25% on $200 billion of Chinese goods effective May 10. Already, $25 billion Chinese exports are facing 25% tariff in the United States. Moreover, Trump also threatened to impose 25% tariff on additional $325 billion of Chinese goods.

Per the Office of the U.S. Trade Representative, the country imported $539.5 billion of goods from China in 2018. U.S. trade deficit with China stood at $419.2 billion in last year. Therefore,  virtually all Chinese goods will face U.S. tariffs if Trump administration levied duties on all proposed items.

U.S. officials accuse China of “erosion of commitments”  and said China is backtracking on promises which it made during the negotiation process. U.S. officials are worried about a change in tone of Chinese delegations over the weekend.

The U.S. Treasury Secretary Steven Mnuchin blamed China of denying clear commitments on key issues which has the potential to completely alter trade negotiations. Notably, the trade deal was expected to materialize by the end of this week.

Meanwhile, on May 6, CNBC reported that China hasn't cancelled the next round of negotiations as reported earlier. Chinese vice premier Liu He will lead a smaller Chinese delegation instead of a 100-member strong China team to Washington later this week.

Following the escalation of U.S.-China trade conflict, shares of major trade-sensitive stocks such as Caterpillar Inc. CAT, Deere & Company DE and Apple Inc. AAPL plummeted 1.7%, 4% and 1.5%, respectively. All three stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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