The major U.S. stock indexes are trading sharply lower shortly after the mid-session. The markets have given back more than half of yesterday’s stellar gains. Traders are blaming renewed tensions between the United States and China for the selling pressure. The price action also indicates that yesterday’s rally was likely fueled by short-covering related to the thin post-holiday trading conditions.
In the cash market at 1918 GMT, the benchmark S&P 500 Index is trading 2409.05, down 58.65 or -2.21%. The blue chip Dow Jones Industrial Average is at 22367.51, down 510.94 or -2.08% and the technology based NASDAQ Composite is at 6363.84, down 190.52 or -2.62%.
U.S.-China Relations at Forefront
The markets opened the session lower on profit-taking, but selling began to accelerate after Reuters reported, citing three sources familiar with the situation, that President Donald Trump is considering an executive order to ban U.S. companies from using equipment build by Chinese firms Huawei and ZTE.
This news encouraged investors to dump stocks as it comes at a time when the two economic powerhouses are trying to strike a permanent trade deal. Investors may feel that this move could prevent the countries from reaching a trade agreement before the 90-day grace period for reaching a deal expires on March 1.
Lingering Uncertainties Including Government Shutdown
The wicked price action this week is being driven by many uncertainties that could linger for weeks or months.
One such uncertainty is the partial government shutdown. On Thursday, President Donald Trump scolded Democrats over his proposed border wall as the crisis carried into its sixth day. According to law, lawmakers will get 24 hours’ notice before any vote on a deal to end the shutdown, meaning a vote could not come before Friday at this point.
As of mid-afternoon Thursday, the White House and congressional leaders still appear far from ending the stalemate even as hundreds of federal workers face furloughs or temporarily work without pay. It’s been reported that employees not working are using vacation time to continue being paid during the break.
Stock Market Price Action Reflects Lack of Confidence in Government
While the headlines continue to place blame on Trump and the Fed, I think that investors are responding to the fact that with a split Congress, President Trump will not be able to fulfill his economic plans. Furthermore, there may be no major economic bills passed over the next two years before the next election. This likely means the economy will stagnate. Investors discounted future events by driving stocks sharply higher since November 2016, now they may be discounting an economic slowdown or a recession.
This article was originally posted on FX Empire
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