Tech Rollover Slams Dow as Chicago Fed Flashes Ominous Recession Signal

US Economy

The Dow and broader U.S. stock market extended their slide Monday after the Trump administration added China’s Huawei Technologies to its trade blacklist, sparking fears of an escalating tariff war between the world’s two largest superpowers. A closely-watched indicator of U.S. economic activity plunged in April to its lowest level in almost three years, leaving investors doubting the extent of the domestic recovery.

Dow Flops; S&P 500, Nasdaq Follow

All of Wall Street’s major indexes finished in negative territory on Monday, picking up where they left off at the end of last week. The Dow Jones Industrial Average fell by as much as 214 points. It would later pare losses to settle down 84.10 points, or 0.3%, at 25,679.90.

Dow Jones Industrial Average
Dow Jones Industrial Average claws finishes well off session lows on Monday. | Source: Yahoo Finance.

The broad S&P 500 Index of large-cap stocks clawed back some of its intraday losses but still finished down 0.7% at 2,840.23. Seven of 11 primary sectors retreated, with information technology backtracking the most. The index fell 1.8%. Three other sectors declined by at least 1%.

Plunging technology shares weighed heavily on the Nasdaq Composite Index, which fell 1.5% to settle at 7,702.38.

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The CBOE Volatility Index, commonly known as the VIX, rose on Monday for its second consecutive advance. The so-called “fear index” peaked at 17.63 on a scale of 1-100 where 20-25 represents the historic average. It would later settle at 16.31, having gained 2.2%.

Trade War Heats Up

Equity markets were under pressure Monday after the Trump administration issued a ban on U.S. companies doing business with Huawei, China’s largest smartphone seller. The ban marked the latest escalation by the Trump administration in its nearly year-long trade war with Beijing after negotiations between the two countries broke down earlier this month.

U.S. Commerce Secretary Wilbur Ross announced on Thursday that Huawei would be blacklisted. Under the new regulation, the company itself and 70 affiliates have been barred from doing business with U.S. companies that make up a critical part of its supply chain.

In a statement, Ross said the new measures will “prevent American technology from being used by foreign-owned entities in ways that potentially undermine U.S. national security or foreign policy interests.”

Google is just one of the companies that has suspended some of its business with Huawei, a move that some say will prevent the Chinese technology giant from becoming the world’s largest smartphone brand.

“We are complying with the order and reviewing the implications,” a Google spokesperson said, as quoted by CNN.

U.S. Economic Activity Weakens in April

A gauge of U.S. economic activity plummeted more than expected last month, raising red flags about President Trump’s self-styled ‘economic miracle.’

The Chicago Federal Reserve’s National Activity Index, which tracks the domestic economy against 85 separate indicators, fell to -0.45 in April from +0.05 in March. Analysts in a median estimate were calling for a reading of -0.33.

The index’s less volatile three-month average decreased to -0.32 from -0.24. Anything below zero suggests the economy is growing below trend.

Factories were largely responsible for the sharp deceleration last month, which is broadly consistent with the latest reading on industrial production. Last week, the Federal Reserve reported that industrial production declined 0.5% in April, confounding expectations for no change. This category measures output at manufacturing facilities, utilities and mines.

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Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi