Benchmarks closed in the negative territory on Tuesday as U.S. blacklisted 28 Chinese companies and imposed visa restrictions on Chinese officials, dampening hopes on trade negotiations. This overshadowed Fed Chairman’s comment on central bank’s balance sheet expansion.
The Dow Jones Industrial Average (DJI) fell 1.2% or 313.98 points to close at 26,164.04. The S&P 500 dropped 1.6% or 45.73 points to close at 2,893.06. The Nasdaq Composite Index closed at 7,865 losing 1.7% or 135.52 points. The fear-gauge CBOE Volatility Index (VIX) increased 11.9% to close at 20.28. Decliners outnumbered advancers on the NYSE by a 3.01-to-1 ratio. On Nasdaq, a 3.42-to-1 ratio favored decliners issues.
How Did the Benchmarks Perform?
Overall negative headlines induced heavy losses to all major indexes. There was a steep 2% drop in the interest-rate sensitive S&P 500 financial index. Shares of Citigroup Inc. (C - Free Report) , Bank of America Corporation (BAC - Free Report) and JPMorgan Chase & Co. (JPM - Free Report) dropped 2.6%, 2.4% and 2.2% respectively.
A major drop was recorded in the Philadelphia Semiconductor index by 3.1% due to the blacklisting of Chinese companies. Big tech shares like Facebook, Inc. (FB - Free Report) , Amazon.com, Inc. (AMZN - Free Report) and Alphabet Inc. (GOOG - Free Report) dropped more than 1%.
Further the S&P 500 industrials sectors also declined 1.6% with major loses in Caterpillar Inc. (CAT - Free Report) and Deere & Company (DE - Free Report) .
U.S. Blacklists 28 Chinese Companies
The United States and China trade negotiation scheduled on Oct 10 and 11 turned gloomy with Trumps’ administration blacklisting 28 Chinese companies late on Oct 7. Officials claimed the blacklisting as a counter to China’s surveillance and detention of Muslim minorities in China’s northwestern Xinjiang region. The blacklisted companies include several artificial intelligence start-ups.
Further on Tuesday, the U.S. placed visa restrictions on Chinese officials who are responsible for the abuse of Muslim minorities. This intensified the tension between the countries just before the high-level trade talk begin.
Chinese officials in response to the U.S. blacklisting suggested that they would take retaliatory measures against America and urged them to “stop interfering” in China’s internal affairs. In fact, a report from the South China Morning Post pointed out that China is softening trade negotiation expectations with the U.S.
As per reports, the trade delegation led by Chinese Vice Premier Liu He will not be carrying the title of “special envoy.” This signals that he has not received any specific instructions by President Xi Jinping.
Further, as per Bloomberg News, the White House is planning to limit government pension investment in China. This dragged down shares of Alibaba Group Holding Limited (BABA - Free Report) and JD.com, Inc. (JD - Free Report) nearly by 3.8% on Oct 8.
Alibaba and 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.
Central Bank to Expand Balance Sheet
The only sign of relief on Tuesday came in with Federal Reserve Chairman Jerome Powell’s statement that central bank will expand its balance sheet in the near future. Powell made it quite clear that this was not a quantitative easing but a measure taken to counter trouble in overnight lending markets prowling in the last few weeks.
Powell also said that the Fed is dependent on data to make future rate cuts. The policymakers feel that the economy is strong but susceptible to shocks from global slowdown, trade wars and geopolitical turmoil. Though, markets expect a third rate cut this year, Powel clarified that the Fed will support the recovery only if the data indicates so. The Fed is “not on a preset course of cutting rates.”
U.S. Producer Prices Record Biggest Drop
Firstly, the depressing trade war and now sad economic data is battering investors and markets and ruining business and consumer’s sentiments. September’s U.S. producer prices data was another indicator that the inflation has started to reverse. The producer price index for final demand dropped 0.3% accounting to the decrease in costs of goods and services.
This is the largest decline in the last eight months. In the economist’s poll conducted by Reuters, PPI was forecasted to rise by 0.1% in September. This fall led to the U.S. producer prices’ smallest annual growth in three years. In the last 12 months till September, PPI has increased 1.4%, which is the smallest gain since November 2016.
The producer prices have been a strong indicator of inflation and a decline could influence the Federal Reserve to make further interest rate cuts in the following month.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>