U.S. markets plummeted on Friday after President Trump threatened to impose tariffs on all Mexican imports unless that country stopped cross-broader migration. Moreover, signs emerged that ongoing trade conflict with China was likely to aggravate. All three major stock indexes ended in the red. For the week and the month as a whole these indexes finished in the negatives too.
The Dow Jones Industrial Average (DJI) tumbled 1.4% or 354.84 points to close at 24,815.04. The S&P 500 plummeted 1.3% to close at 2,752.06. Meanwhile, the Nasdaq Composite Index closed at 7,453.15, plunging 1.5% or 114.57 points. The fear-gauge CBOE Volatility Index (VIX) surged 8.2% to close at 18.71. A total of 7.92 billion shares were traded on Friday, higher than the last 20-session average of 7.01 billion. Decliners outnumbered advancers on the NYSE by a 2.52-to-1 ratio. On Nasdaq, a 3.20-to-1 ratio favored declining issues.
How Did The Benchmarks Perform?
The Dow closed in negative territory with 29 components of the 30-stock blue-chip index closing in the red while one finished in the green. The S&P 500 also closed in the red.The Energy Select Sector SPDR (XLE) and Technology Select Sector SPDR (XLK) tumbled 1.8% and 1.7%, respectively. Notably, nine out of eleven sectors of the benchmark index closed in the red while two finished in the green. Moreover, tech-heavy Nasdaq Composite ended in negative territory due to weak performance by trade-sensitive large-cap stocks.
Trump Warns Mexico to Impose Tariff
On May 30, President Donald Trump tweeted that the United States will impose 5% tariff on all imports from Mexico effective Jun 10, unless that country stops illegal immigrants from crossing the border in order to enter the United States illegally. Further, the tariff rate will increase to 10% on Jul 1, if the flow of illegal migrants continues. Thereafter, the tariff rate will go up by another 5% for every successive month, up to 25% by Oct. 1.
Consequently, shares of General Motors Co. (GM - Free Report) and Ford Motor Co. (F - Free Report) plunged 4.3% and 2.3%, respectively. These two companies have substantial production exposure to Mexico. Ford carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Trade War With China Aggravates
On May 30, China’s state owned newspaper Global Times reported that country will retaliate against the United States with tougher measures soon. Last week, Bloomberg reported that China has decided to stop exporting rare earth minerals to the United States.
These are crucial inputs for developing high-tech products like smartphones, computer memory chips and rechargeable batteries as well as defense-related aerospace products. China has a near monopoly on the production of these materials and almost 80% of the total output is exported to the United States.
Moreover, China’s official manufacturing Purchasing Managers’ Index (PMI) for May slipped to 49.4, from April’s reading of 50.1. PMI readings below 50 signal contraction in Chinese manufacturing sector.
The Department of Commerce reported that personal consumption expenditure (PCE) index increased 0.3% in April up from 0.2% in March. PCE index increased 1.5% annually in April against 1.4% in March.
The core PCE Index (excluding the volatile food and energy components) rose 0.2% in April, in line with the consensus estimate and above the 0.1% increase for March. Year over year, core PCE index – Fed’s favorite gauge of inflation – grew 1.6% in April compared with 1.5% in March. However, the metric remains below the central bank’s target rate of 2%.
Personal income rose 0.5% in April after a modest growth of 0.1% in March. Personal spending rose 0.3% in April compared with 1.1% in March. Personal savings increased to $990.3 billion in April from $963.7 billion in March.
For the week, The Dow declined 3%. This marks the blue-chip index’s sixth straight weekly loss, the longest weekly losing streak since June 2011. The S&P 500 and Nasdaq Composite dropped 2.6% and 2.4%, respectively, marking their fourth consecutive weekly losses. Aggravation of tariff related conflicts between the United States and China weighed on investors’ confidence to a large extent.
In May, the three major stock indexes – the Dow, S&P 500 and Nasdaq Composite – plunged 6.7%, 6.6% and 7.9%, respectively. Sudden break down of the U.S.-China trade negotiations and Trump’s latest threat to impose tariff on Mexico were singularly responsible Wall Street mayhem. Investors shifted to safe-haven government bonds from risky assets like equities. Consequently, yield on benchmark 10-year U.S. Treasury Note declined to 2.13%, its lowest since 2017.
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