U.S. stocks closed mostly lower Monday as the U.S.-China trade war entered a new phase when tariffs on billions of dollars of products took effect. Investors were also looking ahead to the Federal Reserve’s two-day monetary policy meeting, which wraps Wednesday and is likely to result in another interest-rate hike.
How did major benchmarks fare?
The Dow Jones Industrial Average DJIA, -0.68% fell 181.45 points, or 0.7%, to 26,562.05 after closing at a record on Friday. The S&P 500 SPX, -0.35% lost 10.31 points, or 0.4%, to 2,919.37. The Nasdaq Composite Index COMP, +0.08% reversed earlier loss to rise 6.29 points to 7,993.25.
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Sectors closely tied to the trade issue were among the biggest decliners — materials and industrials were both down more than 1%.
Stocks have been in a broad uptrend of late; the S&P 500 has risen in eight of the past 10 trading days, as of Friday, and the Dow posted its biggest weekly gain since July last week.
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What drove the market?
Investors are closely watching the latest developments on trade relations between the U.S. and other major economies, particularly China. While Wall Street has repeatedly ignored the threat of rising trade tensions, focusing instead on strong economic data and corporate fundamentals, there remains concerns that the situation could escalate into a full-blown trade war, which could have a more severe impact on global demand and growth.
On Monday, Chinese officials fired back against the administration of President Donald Trump, accusing it of “trade bullyism” and pushing an “America First” agenda at the cost of international relations. The comments came as the latest exchange of tariffs took effect—10% tariffs on $200 billion worth of Chinese goods, which was met with $60 billion in tariffs on U.S. goods by China.
Read: Trump’s trade war on Chinese goods may hit the toy industry hard
In addition to the trade issue, investors will be watching the Fed, which is widely expected to announce an interest-rate increase at the conclusion of its meeting on Wednesday. The meeting will be followed by Fed Chairman Jerome Powell’s news conference during which investors are expected to seek insight into the state of the economy, the impact of trade issues, or any potential change to central-bank policy.
Politics could also contribute to some market uncertainty as the confirmation of Supreme Court nominee Brett Kavanaugh is looking less than certain with Kavanaugh’s former Yale classmate Deborah Ramirez alleging the judge exposed himself to her at a party.
On the economic data front, the Chicago Fed’s national activity index came in at 0.18 in August, unchanged with the previous month.
What were analysts saying?
“You’d expect a bit of a pullback after hitting records, and there’s also a broader question of where do we go from here, economically? There’s a fear that tariffs could bring the economy down, and it is a near-certainty that the Fed will raise rates this week. That raises the question of how much longer the recovery will last, and how much earnings will grow from here,” said Bruce McCain, chief investment strategist at Key Private Bank.
Trade tensions are rising as Trump administration imposed a 10% tariff on $200 billion worth of Chinese imports which could eventually rise to 25% if the two countries are not able to reach some sort of a compromise, according to L. Thomas Block, Washington policy strategist at Fundstrat Global Advisors. But the key issue that investors should be concerned about is that Trump does not seem to have an exit strategy in his confrontation with China, he said.
What stocks were in focus?
Exxon Mobil Corp. XOM, +1.68% climbed 1.7% and Chevron Corp. CVX, +1.23% was up 1.2% on the back of strong crude oil prices.
Comcast Corp. CMCSA, -5.99% topped 21st Century Fox Inc. FOXA, +1.53% in a three-round auction for Sky PLC SKYAY, +8.70% winning the broadcaster with a $38.8 billion bid. Shares of Comcast slumped 6% while U.S.-listed shares of Sky gained 8.7%.
Sirius XM Holdings Inc. SIRI, -10.32% agreed to buy Pandora P, -1.21% in a stock deal valued at $3.5 billion. Shares of Pandora slid 1.2% while Sirius slumped 10%.
Digital Realty Trust DLR, -4.13% fell 4.1% after it agreed to acquire Ascenty from Great Hill Partners for roughly $1.8 billion.
Randgold Resources Ltd. RRS, +6.03% and Barrick Gold Corp. ABX, +5.44% agreed to an all-share merger that will create an $18.3 billion gold-mining giant. U.S.-listed shares of Barrick rallied 5.4%.
Where were other markets trading?
Hong Kong stocks tumbled on Monday, as trade tensions returned at the start of the week for Asia, which was dulled by the closure of several markets for holidays. European markets were lower across the board.
Read: Morgan Stanley upgrades emerging-market currencies as U.S. stocks outperform
Gold GCM9, +0.25% settled higher climbed while the U.S. dollar index DXY, +0.03% was generally flat. Crude-oil prices CLK9, +2.30% rallied and Brent-crude futures LCOK9, +2.82% traded near their highest level in more than three years. The rise came as major energy producers declined to commit to increasing crude output to address expected supply disruptions at a closely watched producer meeting.
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