Wall Street closed sharply lower on Wednesday ending its four-day winning streak. All three major stock indexes closed in the red. President Donald Trump’s decision to impose a second round of tariffs worth $200 billion on Chinese goods halted the four-day market rally. Investors remain confused between strong expectations of second quarter earnings supported by a fundamentally robust U.S. economy and prolonged trader tensions between the United States and China.
The Dow Jones Industrial Average (DJI) closed at 24,700.45, declining 0.9% or 219.21 points. The S&P 500 Index (INX) decreased 0.7% to close at 2,774.02. The Nasdaq Composite Index (IXIC) closed at 7,716.61, shedding 0.6%. A total of 6 billion shares were traded on Wednesday, lower than the last 20-session average of 6.9 billion shares. Decliners outnumbered advancers on the NYSE by 2.74-to-1 ratio. On the Nasdaq, decliners had an edge over advancers by 1.87-to-1 ratio. The CBOE VIX increased 7.8% to close at 13.63.
How Did the Benchmarks Perform?
The Dow was down 0.9% and once again entered negative territory year to date. Notably, 24 of the 30-stock blue-chip index closed in the red while 5 traded in the green and 1 remain unchanged.
The S&P 500 slumped 0.7% led by 2.1% drop in Energy Select Sector SPDR (XLE), 1.7% decline in Materials Select Sector SPDR (XLB) and 1.6% fall in Industrials Select Sector SPDR (XLI) partially offset by a 0.9% gain in Utilities Select Sector SPDR (XLU). Notably, ten out of 11 sectors of the benchmark index ended in negative territory.
Likewise, tech-heavy Nasdaq Composite lost 0.6% primarily due to poor performance of chipmakers that have a large business stake in China.
U.S. - China Trade War Escalates
The ongoing trade conflict between United States and China is showing no signs of abating. In March, Trump administration announced first phase of 25% U.S. tariffs worth $50 billion. First part of these tariffs worth $34 billion was implemented from Jul 6 and the remaining $16 billion of tariffs will be implemented within next two weeks.
On Jul 10, the U.S. government released a list of 10% tariffs on Chinese goods worth $200 billion. The new tariffs will undergo a two month review and hiring after which final decision will be taken. Last week, President Trump had threatened China that his administration may consider the possibility of imposing new tariffs worth $300 billion on China if it retaliate U.S. tariffs. However, China has retaliated with $34 billion of tariffs imposed on U.S. exports.
Energy Stocks Plunge
Energy stocks plunged on Wednesday on trade war concerns and some positive news on the supply side. These two developments overshadowed the government report which revealed that for the week ending Jul 6, the U.S. crude oil inventory dropped significantly by 12.6 million barrels from the previous week.
Investors fear a full-flagged global trade war will slow economic growth reducing oil demand worldwide. Moreover, supply concerns eased as OPEC reported that Saudi Arabia enhanced oil production in June to its highest level since the end of 2016. Further, four Libyan oil ports have returned to normalcy after Tripoli-based National Oil Corp (NOC) lifted the ban imposed on February.
Additionally, U.S. Secretary of State Mike Pompeo stated on Tuesday that Trump administration will consider requests from some countries to be exempted from sanctions that United States will impose on Iran since November.
On Jul 11, the WTI crude dropped $3.73 or 5%, to settle at $70.38 a barrel on the New York Mercantile Exchange. Brent crude fell $5.46 or 6.9% to end the session at $73.40 a barrel on the London-based ICE Futures Europe exchange.
Consequently, share price of energy behemoths like Chevron Corp. (CVX - Free Report) , Exxon Mobil Corp. (XOM - Free Report) and Halliburton Co. (HAL - Free Report) were down by 3.2%, 1.3% and 2.5%, respectively. Chevron sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Labor Department reported that Producer Price Index (PPI) for final demand increased 0.3% in June surpassing the consensus estimate of 0.2%. June PPI jumped 3.4% year-over-year, its biggest gain since November 2011. Core PPI (excluding food, energy and trade services) also rose 0.3% in June beating the consensus estimate of 0.2%.
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