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U.S. Stocks Pull Back Sharply On Worries About U.S.-China Trade Talks

wallstreet sept06 08oct19 lt

After coming under pressure early in the session, stocks regained some ground over the course of the trading day on Tuesday before pulling back sharply going into the close. The major averages ended the day firmly in negative territory.

The Nasdaq and the S&P 500 fell to new lows in late-day trading, while the Dow remained off its worst levels. The Dow still slumped 313.98 points or 1.2 percent to 26,164.04, the Nasdaq plunged 132.52 points or 1.7 percent to 7,823.78 and the S&P 500 tumbled 45.73 points or 1.6 percent to 2,893.06.

Selling pressure re-emerged late in the session following news the Trump administration imposed visa restrictions on Chinese officials over abuses of Muslim minorities in the Xinjiang region.

The new visa restrictions come just two days before the U.S. and China are scheduled to resume high-level trade talks in Washington.

Optimism about the trade talks had already waned after a report from the South China Morning Post said China is subtly toning down expectations ahead of this week's high-level negotiations.

The SCMP said Chinese Vice Premier Liu He is leading China's delegation to Washington but will not carry the title of "special envoy" for President Xi Jinping, an early indication that Liu has not been given any particular instructions from China's leader.

A source briefed on preparations for the trade talks also told the SCMP that the Chinese delegation may cut short their stay in Washington.

News the U.S. has expanded its trade blacklist to include some of China's top artificial intelligence firms has also cast a shadow over the talks along with a Bloomberg report the White House is discussing blocking government pension funds from investing in China.

Meanwhile, traders largely shrugged off a Labor Department report showing an unexpected decrease in U.S. producer prices in the month of September.

The Labor Department said its producer price index for final demand fell by 0.3 percent in September after inching up by 0.1 percent in August. The drop surprised economists, who had expected another 0.1 percent uptick.

Excluding food and energy prices, core producer prices also slid by 0.3 percent in September after climbing by 0.3 percent in August. Economists had expected core prices to rise by 0.2 percent.

The tame inflation data may clear the way for the Federal Reserve to continue cutting interest rates amid signs of slowing economic growth.

In remarks at the National Association for Business Economics annual meeting in Denver, Colorado, Fed Chairman Jerome Powell reiterated his pledge to "act as appropriate" to support continued growth, a strong job market, and inflation moving back to the Fed's symmetric 2 percent objective.

Powell also indicated that the central bank intends to resume increasing the size of its balance sheet following recent, unexpectedly intense volatility in wholesale funding markets.

Sector News

Semiconductor stocks showed a substantial move to the downside on the day, dragging the Philadelphia Semiconductor Index down by 3.1 percent to its lowest closing level in over a month.

Chipmaker Ambarella (AMBA) posted a particularly steep loss after one of its Chinese customers was blacklisted by the U.S. government.

Significant weakness was also visible among natural gas stocks, as reflected by the 3 percent nosedive by the NYSE Arca Natural Gas Index. The index ended the session at a nearly fifteen-year closing low.

Biotechnology, computer hardware, and banking stocks also saw considerable weakness on the day, reflecting broad based selling pressure on Wall Street.

Meanwhile, gold stocks were among the few groups to buck the downtrend, with the NYSE Arca Gold Bugs Index surging up by 3 percent.

The rally by gold stocks came as the price of the precious metal moved to the upside in electronic trading after ending the regular session slightly lower.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Tuesday. Japan's Nikkei 225 Index jumped by 1 percent, while China's Shanghai Composite Index rose by 0.3 percent.

Meanwhile, the major European markets moved to the downside on the day. While the U.K.'s FTSE 100 Index slid by 0.8 percent, the German DAX Index and the French CAC 40 Index tumbled by 1.1 percent and 1.2 percent, respectively.

In the bond market, treasuries closed modestly higher after seeing late-day volatility. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by 1.6 basis points to 1.537 percent.

Looking Ahead

Trading on Wednesday may be impacted by reaction to more comments from Powell as well as the minutes of the Fed's latest monetary policy meeting.

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