Markets pared losses to close in the green on Friday after Steven Mnuchin stated that trade talks between the United States and China were constructive. Earlier, broader markets had declined in the wake of Trump increasing import tariffs on exports from China. The three major benchmarks ended in the positive territory.
The Dow Jones Industrial Average (DJI) increased 0.4%, to close at 25,942.37. The S&P 500 increased 0.4% to close at 2,881.40. The tech-laden Nasdaq Composite Index closed at 7,916.94, gaining 0.1%. The fear-gauge CBOE Volatility Index (VIX) decreased 2.4% to close at 18.65. Decliners outnumbered advancers on the NYSE by a 1.47-to-1 ratio. On Nasdaq, a 1.62-to-1 ratio favored declining issues.
How Did the Benchmarks Perform?
The Dow gained 114 points to close in the green. The Dow recovered from a 358-point slump suffered earlier in the session after the United States raised tariffs on Chinese products. Further, shares of The Boeing Company (BA - Free Report) increased 0.2% and supported gains for the 30-stock index. The stock carries 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 gained 10.7 points to end in the green. All of S&P 500’s 11 major sectors ended in positive territory, with utilities leading the advancers. The Utilities Select Sector SPDR Fund (XLU) increased 1.8% on Friday.
Meanwhile, the Nasdaq added 6.4 points to close in the positive territory. Gains for the tech-heavy index were propelled by broad-based rally in tech stocks. Shares of Microsoft Corporation (MSFT - Free Report) gained 1.3% and supported gains for the tech-laden index.
Trump Increases Tariffs on Chinese Goods
Following the end of the deadline on May 10 at 12:01 Eastern Time, the United States increased tariffs on $200 billion Chinese goods. 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.
China had earlier threatened to retaliate if Trump administration increased import tariffs on its exports to the United States. Such rhetoric from sides has wreaked havoc on bourses across the globe. The increase in tariffs came after negotiators from both the countries resumed trade talks in Washington on Thursday. The meeting resumed on Friday, but failed to yield a deal.
Moreover, Trump appeared to be patient regarding a trade deal with China as he stated that there was “no need to rush.” He also stated that such tariffs were good for the U.S. economy.
Mnuchin’s Comments and Trump’s Tweet Buoys Markets
Markets rallied after U.S. Secretary of Treasury Steven Mnuchin stated that trade talks between the United States and China were “constructive”, despite no trade deal till Friday. Further, Trump’s tweet that both the countries had engaged in “candid and constructive conversations on the status of the trade relationship,” reinforced investors’ optimism.
After voicing his dissatisfaction on bilateral talks, 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. Such comments weighed on broader markets.
On the economic data front, CPI for the month of April, increased 0.3%, below the consensus estimate of 0.4%. Meanwhile, Core CPI for the period increased 0.1%, also below the consensus estimate of 0.2%.
For the week, the Dow, the S&P 500 and the Nasdaq declined 2.1%, 2.2% and 3%, respectively. While this marked the Dow’s biggest weekly decline since March, it was the S&P 500 Nasdaq’s biggest weekly fall since Dec 21, 2018.
Although trade negotiations continued between the United States and China, no sign of a breakthrough was visible. Comments from top U.S. government officials raised concerns about a fresh tariff war which could dent investor confidence in risky assets like equities. Benchmarks remained in the negative territory for the most part of the week.
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