Want to know why the Dow Jones Industrial Average is doing what it’s doing? Check back here for a semi-live look at the volatile markets from Barron’s reporters.
The U.S. market has been lagging on Monday as the Trump administration announced that it will move forward and unveil new tariffs on $200 billion of Chinese goods. The two countries are set to negotiate again later this month on the trade disagreements.
The S&P 500slipped 0.6%, while the Dow Jones Industrial Average dropped 0.3% and the Nasdaq Compositetumbled 1.3%. Even the small-cap Russell 2000 was affected by the news, declining 1.0% on Monday. Smaller stocks are usually considered somewhat isolated from effects in the overseas market, and therefore safer in a trade war. But a major escalation in tariffs creates strong ripples, apparently.
Trade concerns, together with other factors, might make the time ripe for some volatility in the weeks ahead, according Tony Dwyer, an analyst at Canaccord Genuity.
The S&P 500 set a new high on Aug. 29, while volatility–as measured by the CBOE Volatility Index(VIX)–has dropped to a cyclical low level around 12.0. Under these conditions, the market could become more susceptible to the news cycle and register some pullbacks, says Dwyer.
Investor uncertainties are increasing with U.S. trade-related rhetoric with Canada and China on the rise, a likely interest-rate hike later this month, the yield curve close to inverting, and coming midterm elections.
“There is no doubt these potentially disruptive influences could cause increased volatility in the weeks ahead given the move to new highs and drop in volatility,” writes Dwyer in a note today.
But he believes the volatilities should be only temporary given the overall positive fundamental backdrop and suggests investors buying into the weakness until there is an identifiable recession in sight.
On another note, the Empire State Manufacturing Index released Monday by the New York Fed fell to 19.0 in September from 25.6 in August, pointing to a slower pace of growth than last month.
The index, which surveys manufacturers in New York state, is the first one released among several regional manufacturing surveys, and can give some timely reading into part of the nation’s economy. The index peaked in late 2017, and has slipped since through this year.
Both new orders and shipments have seen moderate growth, but lower than last month. Other forward-looking indicators, such as the six-month outlook and six-month capex also saw some deterioration in September.
It’s still too early to tag this as a sign of a slowdown, as the index only represents one state and can be relatively volatile, it remains something to bear in mind.
10:46 a.m. How’s this for a topsy-turvy day? The Dow Jones Industrial Averagehas risen 20.75 points, or 0.1%, to 26,175.42, but the Nasdaq Compositehas dropped 0.9% to 7935.59. The broader S&P 500has fallen 0.2% to 2898.21.
Blame those pesky internet stocks. Twitter(TWTR) has dropped 5.5% to $28.46, making it the worst performer in the S&P 500, while Amazon.com(AMZN) has fallen 3.3% to $1,906.00, and Netflix(NFLX) is off 2.7% to $354.85.
None are in the Dow. –Ben Levisohn
Dow Drops 18 Points as China’s Stocks Sink on Trade Tension
7:44 a.m. It’s still all about tariffs Monday morning, as reports that the U.S. was planning to go ahead with new penalties on Chinese goods were met with threats of possible retaliation.
S&P 500futures have dipped 0.1%, while Dow Jones Industrial Averagefutures have declined 18 points, or 0.1%. Nasdaq Composite futures have fallen 0.2%. But those losses are nothing compared what happened in Asia, as China’s Shanghai Compositeclosed at its lowest level since 2014.