Tariffs Threats Hitting the Stock Market

May 8, 2019
837 Views

President Trump’s threat to hike Chinese tariffs has sent the stock market into its biggest single day slide in weeks. At the close on Tuesday, all major indexes were down, although damage was less than what the early day lows would have suggested.

After weeks of positive trade news, the President shocked investors by announcing that tariffs would increase as early as Friday. The announcement breaks months of a tariff ‘ceasefire’ while both Chinese and U.S. diplomats have engaged in high-level trade negotiations.

All Major Indexes Post Losses on Tuesday

Not a single major index was spared the sudden decline in confidence on Tuesday.

  • The Dow Jones Industrial Average (DJIA) finished the day down -473.39 points, a total decline of -1.79%.
  • The S&P 500 Index (SPX) was down -48.42 points, a decline of -1.65%.
  • The tech weighted NASDAQ Composite Index (COMP) finished down -159.53 points, a decline of -1.96%.

Only 36 stocks on the S&P 500 index finished Tuesday in the green. These outliers are riding a wave of confidence, but this could disappear if Trump does push ahead with tariff increases later this week.

  • General Motors Co. (NYSE: GM) was up 1.2% at the close of trading.
  • American International Group Inc. (NYSE: AIG) was the best performer, closing with a gain of 6.77%.
  • FMC Corp. (NYSE: FMC) ended the day with a 2.96% gain.

Asian Markets Continued the Downtrend on Wednesday

The major Asian stock markets are often reactive to U.S. markets, but they can also hint at future performance.

  • The Shanghai Composite (SHCOMP) closed with a -1.12% decline.
  • The Shenzhen Composite (399106) was down -0.4%.
  • The Nikkei (NIK) was down -1.46% when trading ceased for the day.

Asian investors are concerned that higher tariffs will interrupt trade. Chinese export slowdown is also a factor.

Investors Could Still Find an Upside

The markets have rallied this year, and even with this week’s slides, stocks are still at record levels. Investors could even stand to gain from the current dip. Lower confidence means that stocks become more affordable. Some of the biggest growth stocks of this year could be purchased at a discount today.

The underlying strength of the market is uncompromised. A Chinese trade deal is not off the table, and some economists believe that Trump’s threats are intended to force China to make key concessions in the final stages of negotiation.

There is even speculation that the Federal Reserve could implement rate cuts if trade talks are unsuccessful. This would give the market more breathing room as economic expansion continues to cool.

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