U.S. stock fell sharply lower on Tuesday after trade tensions between the United States and European Union escalated. Moreover, the International Monetary Fund (IMF) reduced global growth forecast for 2019, which also dented investor’s confidence. All the major stock indexes closed in negative territory.
The Dow Jones Industrial Average (DJI) closed at 26,150.58, declining 0.7% or 190.44 points. The S&P 500 Index (INX) dropped 0.6% to close at 2,878.20. Meanwhile, the Nasdaq Composite Index (IXIC) closed at 7,909.28, shedding 0.6%. A total of 6.31 billion shares were traded on Tuesday, lower than the last 20-session average of 7.26 billion shares. Decliners outnumbered advancers on the NYSE by 2.74-to-1 ratio. On the Nasdaq, decliners had an edge over advancers by 2.70-to-1 ratio. The CBOE VIX increased 8.4% to close at 14.28.
How Did the Benchmarks Perform?
The Dow ended in negative territory for second successive day with 26 stocks of the 30-stock index finishing in the red while four ended in the green. This was the blue-chip index’s largest single-day decline since Mar 22. The tech-heavy Nasdaq Composite finished in the red, marking its biggest daily decline since Mar 27, due to weak performance by large-cap tech stocks.
The S&P 500 also closed in the red reversing the winning streak for eight straight-days. This was the benchmark index’s largest single-day loss since Mar 22. The Industrials Select Sector SPDR (XLI) and Energy Select Sector SPDR (XLE) declined 1.4% and 1.2%, respectively. Notably, nine out of eleven sectors of the broad-market index closed in the red and two finished in the green.
U.S.—EU Trade Tension Heightens
On Apr 8, The U.S. Trade Representative proposed to levy tariffs worth of $11 billion on Eurozone products. An array of products including large commercial aircraft and parts, dairy products and wine will be subject to U.S. tariffs.
This is a retaliatory measure against what the Trump administration believes are illegal subsidies Eurozone countries provide to Airbus. These subsidies will impact sales of U.S. made aircraft, especially those manufactured by The Boeing Co. (BA - Free Report) . Boeing carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, the European Union (EU) has strongly objected to White House and threatened to impose retaliatory tariffs.The U.S. government has already imposed 25% tariffs on imported steel from Eurozone and 10% tariff on imported aluminum. The EU has retaliated with $3 billion of counter tariffs on U.S. exports. Moreover, President Trump has threatened to levy 25% tariffs on EU auto products. Notably, the U.S- EU trading relationship is worth more than $1 trillion per annum.
IMF Reduces Global Growth Forecast
On Apr 9, the International Monetary Fund (IMF) reduced its global economic growth forecast for 2019. This was the third reduction in last six months. The new estimate for the year is 3.3% compared with 3.5% projected in January and 3.7% forecasted in October. Global growth rate forecast for 2020 was remained flat at 3.6%.
Estimates of yearly growth for the United Sates declined to 2.3% from 2.5%. Eurozone’s growth projection dropped to 1.3% from 1.6% while GDP growth forecast for Canada decreased to 1.5% from 1.9%. However, China’s economy is estimated to grow by 6.3%, higher than the earlier estimate of 6.2%.
The IMF cited trade tensions, likelihood of tighter monetary policy by central banks, appreciation of U.S. dollar price and geopolitical concerns such as Brexit and middle-east problems are near term challenges.
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