U.S. stocks fell in midday trading on Monday, opening the third quarter of 2018 on a negative note as trade tensions between the U.S. and its major trading partners continued to show signs of escalating.
The day’s losses were widespread, with 10 of the 11 primary S&P 500 sectors down. Trading was volatile, with the technology sector erasing an early rise, while the biggest losses came in the materials and energy sectors.
What are the main benchmarks doing?
The Dow Jones Industrial Average DJIA, -0.28% fell 138 points, or 0.6%, to 24,134. The S&P 500 SPX, -0.15% lost 12 points to 2,706, a decline of 0.4%. The Nasdaq Composite Index COMP, +0.24% dropped 20 points, or 0.3%, to 7,490.
Trading may be volatile this week, as some market participants will be out of the office for the Fourth of July holiday, for which markets will be closed on Wednesday. Lower trading volume can exacerbate day-to-day swings.
What’s driving markets?
Recent trading has been driven by uncertainty over trade policy, with investors seeking clarity about potential protectionist changes to U.S. policies and how they could be met by retaliatory measures. A trade war is seen as providing a significant headwind to global growth.
On Sunday, President Trump said he sees his threat to impose global auto tariffs as his biggest weapon to extract concessions from trading partners. At the same time, he called the EU “as bad as China” in hindering U.S. trade.
Meanwhile, a Financial Times report on Sunday said the European Union has threatened $300 billion in fresh tariffs against U.S. products if Trump follows through on his threatened 20% levies targeting the trade bloc’s auto makers. And Canadian retaliatory tariffs took effect Sunday, with those measures serving as a response to U.S. metals tariffs.
In another significant question mark, Axios reported that the Trump administration had crafted a draft bill that would declare America’s abandonment of World Trade Organization rules. This would essentially give Trump a license to raise tariffs at will, without congressional consent and largely outside of the international rules governed by the WTO.
What are strategists saying?
“That we’re starting the second half of the year on a down note is really telling. This is usually a slow week with the holiday, but there’s definitely color in the market that is causing it to be volatile,” Mark Esposito, president of Esposito Securities, a Dallas-based asset manager.
“When Trump starts talking about the WTO, China, all these big economies and these big threats, the market is going to react to that. It creates turmoil, and people are getting frustrated with all the back and forth. I think the long-term growth story of the economy remains intact, but in the meantime the trade will can cause a lot of tremors in the short term,” he said.
What are other markets doing?
Oil futures CLQ8, -0.35% fell after a weekend tweet from Trump hinted at a big potential production increase from Saudi Arabia. Gold futures GCQ8, -0.91% also were down, as the ICE U.S. Dollar Index DXY, +0.50% gained.
Which stocks are in focus?
Auto-industry players such as General Motors Co. GM, -0.10% and Ford Motor Co. F, -0.59% were also in focus on trade concerns. GM on Friday warned the Trump administration that tariffs on vehicle imports would hurt its competitiveness, cost U.S. jobs and result in “a smaller GM.”
Other major auto makers joined GM in comments to the U.S. Department of Commerce, including Toyota Motor Corp. TM, -0.85% 7203, -1.42% which warned Friday that auto tariffs “would have a negative impact on all manufacturers.”
GM lost 0.9%, while Ford was down 1.3%. U.S.-listed shares of Toyota were down 1%.
Compugen Ltd. CGEN, +3.79% jumped 4.6% after the U.S. Food and Drug Administration lifted a clinical hold on its investigational new drug application for an immuno-oncology therapeutic antibody.
Which economic reports are in focus?
A read on June manufacturing from Markit came in at 55.4, compared with a preliminary reading of 54.6. Separately, the Institute for Supply Management’s manufacturing index rose to 60.2% in June from 58.7%. A read on construction spending rose 0.4% in May.