Categorised in: Business
Markets witnessed a steep decline on Thursday after Trump slapped China with annual tariffs worth billions of dollars. Three major indexes declined to their lowest levels since Feb 8. Further, financial shares plummeted to their lowest level in six weeks. Meanwhile, the CBOE VIX surged more than 30% after markets were gripped with fears of a trade war.
The Dow Jones Industrial Average (DJI) decreased 2.9% to close at 23,957.89. The S&P 500 lost 2.5% to close at 2,643.69. The tech-laden Nasdaq Composite Index closed at 7,166.68, decreasing 2.4%. The fear-gauge CBOE Volatility Index (VIX) increased 34.6% to close at 24.04. Decliners outnumbered advancers on the NYSE by a 2.29-to-1 ratio. On Nasdaq, a 2.50-to-1 ratio favored declining issues.
U.S. Imposes $60 Billion in Annual Tariffs on China
President Trump signed a bill on Thursday, the purpose of which is to impose $60 billion in annual tariffs on China. Citing China’s ‘unfair’ trade practices as the primary reason behind such levies, Trump also stated that this would be the “first of many” such actions that he intends to take against China.
These so called ‘protectionist’ measures are actually aimed at castigating China for practices which Trump believes helps China ‘steal American intellectual property.’ Targeted products include those from the technology sector where Trump believes China holds an advantage over the United States. Such areas include robotics, artificial intelligence and advanced wireless computers.
The newest measures would be a part of the 301 investigation headed by U.S. Trade Representative Robert Lighthizer. The body would probe into China’s unfair trade practices and would publish a list of targeted products within 15 days. Officials from the administration also stated that the list would include some 1,300 product lines.
CBOE VIX on a Tear
Post the resurgence of trade fears, the fear-gauge of the market — the CBOE Volatility index skyrocketed 31% to hit 23.35, finally settling at 24.04 on Thursday. The VIX has more than doubled so far this year.
Current weakness in the technology sector as well as the sell-off which ensued post Trump’s imposition of levies on China, triggered widespread frenzy in the markets and led to a surge in VIX. This also marked its highest increase in a single session since Feb 5, when the fear-gauge doubled from its lowest ever levels.
How Did the Benchmarks Perform?
The Dow plummeted 723.4 points to close at its lowest level since Feb 8. This also marked its second lowest close for 2018. Currently, the blue-chip index is trading 10% lower than its all-time high than it achieved earlier in the year. Majority of losses were attributable to Caterpillar CAT, 3M MMM and Boeing BA, shares of which declined 5.7%, 4.7% and 5.2%, respectively.
The S&P 500 declined 68.2 points to close in the red, turning negative for the current year. This also marked its lowest close since Feb 9. The broader-index is 8% off its all-time high. Of the 11 major segments of the S&P 500, 10 ended in the negative, eight of which declined more than 2%. The laggards were led by financial stocks, while utilitieswas the only sector to finish in the green.
The Financial Select Sector SPDR ETF (XLF) decline 3.7% and the Utilities Select Sector SPDR ETF (XLU) was up 0.4%. The financial sector slumped to a six-week low on Thursday. The Financial Select Sector SPDR ETF (XLF) closed at $27.81, its lowest level since Feb 9. Further, SPDR S&P Regional Banking ETF (KRE) declined 3.6%.
Losses for financials were marked by a decline in some of the major banking stocks. Shares of Morgan Stanley MS, Bank of America BAC, Goldman Sachs GS and Regions Financial RF were down 4.3%, 4.1%, 3.5% and 4.7%, respectively.
Meanwhile, the tech-laden Nasdaq tanked 178.6 points and The Russell 2000 index (RUT) fell 2.1% on Thursday. Both the indexes posted their worst closes since Feb 8. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Facebook’s Zuckerberg Issues Apology
In an interview with CNN, Chief Executive Officer and Co-founder of Facebook FB apologized late on Wednesday for the data breach controversy involving the analytics firm Cambridge Analytica. He stated that such an issue was “a major breach of trust and I’m really sorry this happened.” He further added that his team at Facebook would make sure that such things do not “happen again.”