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Stocks Close Mostly Lower But Well Off Worst Levels - U.S. Commentary


After showing a significant move to the downside early in the session, stocks regained some ground over the course of the trading day on Tuesday. The major averages climbed well off their worst levels of the day but still closed in negative territory.

The major averages all finished the session in the red, although the Dow underperformed its counterparts by a wide margin. The Dow tumbled 287.26 points or 1.2 percent to 24,700.21, while the Nasdaq fell 21.44 points or 0.3 percent to 7,725.58 and the S&P 500 slid 11.18 points or 0.4 percent to 2,762.57.

Trade war concerns weighed on Wall Street after President Donald Trump directed U.S. Trade Representative Robert Lighthizer to identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10 percent.

Trump said the tariffs will go into effect if China refuses to change its unfair trade practices and insists on going forward with recently announced tariffs.

The potential tariffs announced by Trump come as the U.S. and China both announced plans to impose tariffs on up to $50 billion worth of goods imported from the other country.

Trump threatened to pursue additional tariffs on another $200 billion worth of goods if China increases its tariffs yet again.

"The United States will no longer be taken advantage of on trade by China and other countries in the world," Trump said. "We will continue using all available tools to create a better and fairer trading system for all Americans."

Despite the threat from Trump, China vowed to retaliate with "strong" countermeasures if the U.S. goes ahead with the new tariffs.

"This practice of extreme pressure and blackmail deviates from the consensus reached by both parties on many occasions and is disappointing for the international community," the Commerce Ministry said in a statement.

The statement added, "The United States has initiated a trade war that violates market laws and is not in accordance with current global development trends."

In U.S. economic news, the Commerce Department released a report showing a much bigger than expected jump in new residential construction in the month of May, although the report also showed a much steeper than expected drop in building permits.

The report said housing starts spiked by 5.0 percent to an annual rate of 1.350 million in May after tumbling by 3.1 percent to a revised rate of 1.286 million in April.

Economists had expected housing starts to climb by 1.8 percent to a rate of 1.310 million from the 1.287 million originally reported for the previous month.

Meanwhile, the Commerce Department said building permits plunged by 4.6 percent to an annual rate of 1.301 million in May after falling by 0.9 percent to a revised rate of 1.364 million in April.

Building permits, an indicator of future housing demand, had been expected to edge down by 0.1 percent to a rate of 1.350 million from the 1.352 million originally reported for the previous month.

Sector News

Steel stocks turned in some of the market's worst performances on the day, as traders worried about the potential impact of a trade war between the U.S. and China.

Reflecting the weakness in the steel sector, the NYSE Arca Steel Index slumped by 2.3 percent to its lowest closing level in over two months.

Significant weakness was also visible among chemical stocks, as reflected by the 1.8 percent loss posted by the S&P Chemical Sector Index.

Transportation, semiconductor, and computer hardware stocks also saw notable weakness, while biotechnology and utilities stocks showed strong moves to the upside.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved significantly lower during trading on Tuesday. Japan's Nikkei 225 Index plunged by 1.8 percent, while China's Shanghai Composite Index plummeted by 3.8 percent.

The major European markets also moved to the downside on the day. While the U.K.'s FTSE 100 Index fell by 0.4 percent, the French CAC 40 Index and the German DAX Index slumped by 1.1 percent and 1.2 percent, respectively.

In the bond market, treasuries benefited from their appeal as a safe haven amid the trade war concerns. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, dropped by 3.3 basis points to 2.893 percent.

Looking Ahead

Developments regarding the trade dispute between the U.S. and China may impact trading on Wednesday, although traders are also likely to keep an eye on a report on existing home sales in May.

A panel discussion involving Federal Reserve Chairman Jerome Powell, European Central Bank President Mario Draghi, Bank of Japan Governor Haruhiko Kuroda, and Reserve Bank of Australia Governor Philip Lowe may also attract some attention.

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