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Stocks Move Notably Higher As Tariff Rates Less Than Feared - U.S. Commentary


Stocks moved mostly higher during trading on Tuesday, as traders shrugged off concerns about the escalating trade war between the U.S. and China. The strength on the day came on the heels of the pullback seen in the previous session.

The major averages ended the day firmly in positive territory but off their highs of the session. The Dow climbed 184.84 points or 0.7 percent to 26,246.96, the Nasdaq advanced 60.32 points or 0.8 percent to 7,956.11 and the S&P 500 rose 15.51 points or 0.5 percent to 2,904.31.

Traders seemed to be expressing relief that the rates of tariffs the U.S. will impose on Chinese goods and retaliatory tariffs China will impose on U.S. goods are not as high as feared.

President Donald Trump announced new tariffs on approximately $200 billion worth of Chinese imports on Monday, although the tariffs will initially be set at 10 percent compared to the 25 percent previously floated by the administration.

However, the tariffs are set to rise to 25 percent on January 1st, and Trump said the U.S. would impose tariffs on another $267 billion worth of Chinese imports if China takes retaliatory action.

Despite the threat from Trump, China announced it will retaliate by imposing tariffs on $60 billion worth of U.S. goods, effective September 24th.

The Chinese tariffs will reportedly range from 5 percent to 10 percent after China previously earmarked some goods for a 20 percent levy.

With the new round of tariffs, Timme Spakman, economist at ING, noted the percentage of world trade affected by U.S. tariffs on China will rise to 2.5 percent.

"If the U.S. carries out its threat to impose tariffs on the remainder of its imports from China, this will equal approximately 4% of world trade," Spakman said.

He added, "Although this percentage may seem small, the tariffs will disrupt Sino-American supply chains, and may, therefore, triple the effects on world trade."

In U.S. economic news, the National Association of Home Builders released a report showing homebuilder confidence has held steady in the month of September.

The report said the NAHB/Wells Fargo Housing Market Index came in at 67 in September, unchanged from August. Economists had expected the index to edge down to 66.

Sector News

Reflecting the lack of concern about the escalating trade war between the U.S. and China, steel stocks turned in some of the market's best performances on the day.

The NYSE Arca Steel Index jumped by 2.1 percent, closing high for the fifth consecutive session after hitting its lowest closing level in over nine months a week ago.

Tobacco stocks also moved sharply higher over the course of the session, driving the NYSE Arca Tobacco Index up by 2.3 percent.

The rally by tobacco stocks came as the FDA launched a new, comprehensive campaign to warn kids about the dangers of e-cigarettes.

Significant strength was also visible among telecom stocks, as reflected by the 1.5 percent advance by the NYSE Arca Telecom Index.

Retail, energy, and biotechnology stocks also saw notable strength on the day, reflecting broad based buying interest on Wall Street.

Other Markets

In overseas trading, stocks markets across the Asia-Pacific region moved mostly higher on Tuesday as traders shrugged off the tariff news. Japan's Nikkei 225 Index jumped by 1.4 percent, while China's Shanghai Composite Index soared by 1.8 percent.

Most European stocks also saw some strength on the day, although the U.K.'s FTSE 100 Index closed just below the unchanged line. The French CAC 40 Index and the German DAX Index rose by 0.3 percent and 0.5 percent, respectively.

In the bond market, treasuries moved notably lower after ending the previous session roughly flat. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 4.7 basis points to a nearly four-month closing high of 3.048 percent.

Looking Ahead

Trading on Wednesday may be impacted by reaction to the Commerce Department's report on new residential construction in the month of August.

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