Stocks slumped hard on Thursday reversing early session gains after President Trump surprised the world by announcing tariffs on imported steel and aluminum of 25% and 10%, respectively. Following tariffs on solar panels and washing machines, Trump’s trade posture is becoming increasingly hawkish. Trading partners aren’t happy, with Chinese officials warning that they were “seriously concerned” about the issue while European officials are threatening to retaliate.
In the end, the Dow Jones Industrial Average lost 1.7%, the S&P 500 lost 1.3%, the Nasdaq Composite lost 1.3% and the Russell 2000 lost 0.3%. Treasury bonds strengthened, pushing yields down as the 10-year settled at 2.81%. Meanwhile, the dollar weakened along with gold and crude oil.
Breadth was negative, but not overwhelmingly so, with decliners outpacing advancers by a ratio of 1.5-to-1. There were 170 new lows on the NYSE vs. 16 new highs.
Adding to the pressure was more hawkish commentary from the Federal Reserve, with New York Fed President Bill Dudley opening the door a little wider to four quarter-point rate hikes this year, while chairman Jerome Powell warned he didn’t want to “get behind the curve on inflation.”
All of this is self reinforcing: The Trump tariffs will boost import prices, pushing inflation higher and forcing the Fed to tighten rates more aggressively.
Metal stocks outperformed, obviously, with United States Steel Corporation (NYSE:X) up 5.8% and Century Aluminum Co (NASDAQ:CENX) up 7.5%. Automakers fell, as pricer metals will raise their production expense, with Ford Motor Company (NYSE:F) down 3%. Overall, 11 out of 11 sectors finished in the red for the third consecutive loss for equities.
A number of major technical measures have been taken out with the Dow Jones losing its 20-day and 50-day moving averages on Wednesday and losing the 25,000 threshold today. The 24,000 level is associated with February’s panic lows. And the S&P 500 seems set to test the critical support at the 200-day average that stemmed the selling a few weeks ago.
The setup heading into today’s selloff was troublesome as well, with the rebound from the February lows coming too hard and too fast — mirroring short-lived “dead cat” bounces in the past.
Gluskin Sheff’s David Rosenberg sums it up well: “Tariffs. Sharp bond selloff. Weak dollar policy. Massive twin deficits. New Fed Chairman. Cyclical inflationary pressures. Overvalued stock markets. Heightened volatility. Sounds eerily familiar (from someone who started his career on October 19th, 1987!).”
Edge Pro subscribers are enjoying the chaos, with a 350% gain in their newly added call option position on the iPath S&P 500 VIX Short Term Futures TM ETN (NYSEARCA:VXX).
Check out Serge Berger’s Trade of the Day for March 2.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
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Anthony Mirhaydari is the founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.