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Stock Market News for Sep 30, 2019

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U.S. stock markets closed lowered on Friday owing to fresh trouble on the U.S.-China trade war front and some recently released weak data of the U.S. economy. All three major stock exchanges ended in the red. For the week as a whole, three indexes finished in negative territory also.

The Dow Jones Industrial Average (DJI) lost 0.3% to close at 26,820.25. The S&P 500 tumbled 0.5% to close at 2,961.79. Meanwhile, the Nasdaq Composite Index closed at 7,939.63, plunging 1.1%. The fear-gauge CBOE Volatility Index (VIX) increased 7.2% to close at 17.22, its highest in three weeks.  A total of 6.68 billion shares were traded on Friday, lower than the last 20-session average of 7.20 billion. Decliners outnumbered advancers on the NYSE by a 1.38-to-1 ratio. On Nasdaq, a 1.94-to-1 ratio favored declining issues.

How Did The Benchmarks Perform?

The Dow closed in negative territory with 17 components of the 30-stock blue-chip index closing in the red while the remaining 13 ended in green. The Nasdaq Composite finished in the red due to weak performance of semiconductor stocks. The S&P 500 also ended in the red. The Technology Select Sector SPDR (XLK) and the Communication Services Select Sector SPDR (XLC) lost 1.3% and 1.1%, respectively. Notably, ten out of total 11 sectors of the benchmark index closed in the red while one finished in green.

U.S.-China Trade Tension Heightens

On Sep 27, Bloomberg reported that the U.S. government is considering limiting U.S. investment in Chinese companies. As a part of this broad-based measure, the Trump administration is likely to delist Chinese corporates from U.S. stock exchanges. Later CNBC also confirmed the news citing a source familiar with the development. However, the source pointed out that no decision has taken so far and no deadline has been set to meet the target. 

Surprisingly, this development took place when high-level trade delegation of China will meet its U.S. counterpart in Washington during Oct 10-11. Per the unnamed source, restriction on financial investment in Chinese companies will protect U.S. corporates from excessive risks they are currently exposed to from lack of financial transparency and regulatory supervision of the Chinese government.

Chinese companies have a large presence in U.S. capital markets. A total of 156 Chinese companies were listed in the United States. Per the latest data as of February 2019, Chinese corporates command a market capitalization of around $1.2 trillion in several U.S. stock exchanges. Consequently, if President Trump finally takes this decision ongoing trade conflict between the two largest trading countries of the world will certainly be escalated.

Consequently, shares of U.S.-listed Chinese companies like Alibaba Group Holding Ltd. (BABA - Free Report) , Baidu Inc. (BIDU - Free Report) and JD.com Inc. (JD - Free Report) plunged 5.2%, 3.7% and 6%, respectively. JD.com carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Weak Economic Data

The Department of Commerce reported that overall orders for U.S. factory made durable goods increased 0.2% in August compared with an impressive 2% (revised from 2.1% reported earlier) in July. However, orders for core capital goods (non-defense capital goods excluding aircraft) declined 0.2% in August primarily due to weak demand for household machineries. Notably, this metric is a closely watched proxy for business spending plans.

U.S. consumer spending edged up 0.1% in August after surging 0.5% (revised from 0.6% reported earlier) in July. The data indicates that the lingering tariff war with China has started taking a toll on consumer spending aside from a considerable decline in business spending. Notably, consumer spending is the main driver accounting for nearly 70% of the U.S. GDP.

PCE (personal consumption expenditure) price index rose 0.1% in August compared with 0.3% in July. Year over year, PCE inflation grew 1.4%. Core PCE inflation (excluding the volatile food and energy components) edged up 0.1% in August compared with 0.2% in July. Year over year, core PCE inflation increased 1.8%, still below the Fed’s target rate of 2%.

Weekly Roundup

For the week as a whole, all three major stock indexes ---- the Dow, the S&P 500 and the Nasdaq Composite ---- plummeted 0.4%, 1% and 2.2%, respectively, marking the second successive week of decline for three major stock indexes.

Uncertainty about an interim trade deal, Trump administration’s reported decision to restrict U.S. companies from doing financial investment in Chinese companies and likely delisting of Chinese companies from U.S. stock markets dented investors’ confidence. Moreover,the initiation of an impeachment proceeding against President Donald Trump became an added concern.

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