Underscoring the highly fragile nature of the U.S.-China trade relationship, stocks tumbled late Thursday after President Donald Trump took to Twitter to voice his dissatisfaction with the trade talk while threatening to apply a 10% tariff on another $300 billion worth of Chinese goods starting Sept. 1. That would be in addition to the current levy of 25% on $250 billion worth of Chinese exports to the U.S.Among other issues, Trump is irked by China’s refusal to increase purchase of American agriculture products and the country’s inability to stop exports of the deadly synthetic opioid fetanyl.
“Additionally, my friend President Xi said that he would stop the sale of Fentanyl to the United States – this never happened, and many Americans continue to die!,” said Trump in one of several tweets.
A wide array of sectors were plagued by Trump’s Twitter trade barbs, resulting in the Nasdaq Composite and S&P 500 shedding 0.79% and 0.90%, respectively. The Dow Jones Industrial Average settled lower by 1.05%.
Safe-have plays were in style today. As just one example, the SPDR Gold Shares (NYSEARCA:GLD), the largest gold ETF, continued what has been remarkable a ascent, adding 2.39% following the trade news.
First, the Bad News for the Dow
In what may be a delayed, gloomier reaction to yesterday’s news that the Federal Reserve cut interest rates, Goldman Sachs Group (NYSE:GS) was the worst Dow loser today, sliding 3.87%. If that is indeed the case, today’s sell is probably a bit too much too fast for a quality name like Goldman.
The 3.71% decline in shares of Caterpillar (NYSE:CAT), the Dow’s second-worst performer today, was more understandable because that company has significant China exposure and has previously warned about its sensitivity to U.S.-China trade talks. Not only does Caterpillar’s Thursday slide come after a rough July for the industrial machinery maker, it nearly wipes out the stock’s year-to-date gains.
In what is not a surprise to seasoned investors, oil prices tumbled on the trade news, amplifying concerns ahead of some marquee energy earnings reports Friday before the bell. Exxon Mobil Corp. (NYSE:XOM) and Chevron Corp. (NYSE:CVX), both Dow components, report tomorrow. Recent price action in these names suggests investors should be betting on big upside surprises.
Standouts in the Dow
Thursday was another day when Dow winners were in short supply. When the closing bell rang, just seven of the Dow’s 30 members closed higher and just three of those names were up more than 1%.
Give some credit to International Business Machines (NYSE:IBM). Big Blue added 1.42% after Morgan Stanley made bullish comments on IBM due in part to the company’s recent Red Hat acquisition.
“On Thursday, Morgan Stanley analyst Katy Huberty resumed coverage of IBM shares with an Overweight rating and $170 price target,” according to Barron’s. “She wrote that normalized growth accelerated in the most recent quarter, and with Red Hat now part of IBM, that should drive sustainable annual growth of 2%—a rate that the stock’s current valuation doesn’t seem to reflect.”
Verizon Communications (NYSE:VZ) lost 0.02% after the company said it added 451,000 postpaid subscribers in the second quarter. The company still expects to earn $4.71 a share this year.
Dow Jones Today Bottom Line
Thursday serves as a reminder that with a simple visit to Twitter, President Trump can move markets. It is also a reminder that until real progress is made on the trade front, investors may want to focus on sectors that generate big chunks of their revenue on a domestic basis. Those just happen to be some groups that also benefit from lower interest rates – real estate, telecom and utilities.
Todd Shriber does not own any of the aforementioned securities.