Thursday Marked Painful Reversal for U.S. Stocks After Trump Announces New China Tariffs
The Dow and broader U.S. stock market tumbled on Thursday after President Trump said the United States will implement additional tariffs on Chinese imports beginning next month. Trump unleashed a new Twitter tirade less than a day after both countries concluded their first face-to-face negotiations in over two months.
Dow Reverses Course; S&P 500, Nasdaq Follow
After rising more than 300 points, the Dow Jones Industrial Average saw a full 600-point swing beginning around 1:30 p.m. ET. The blue-chip index settled down 280.85 points, or 1.1%, to 26,583.42.
The broad S&P 500 Index of large-cap stocks followed suit, falling 0.9% to 2,953.56. Most sectors finished with heavy losses, with energy, financials and industrials falling at least 2%.
Meanwhile, the technology-focused Nasdaq Composite Index fell 0.8% to 8,111.12.
Thursday was an extremely volatile session for U.S. stocks. The CBOE Volatility Index, commonly known as the VIX, spiked more than 20% and peaked at its highest level in two-and-a-half months. The so-called “fear index” touched a high of 19.35 on a scale of 1-100 where 20-25 represents the historic average.
The VIX and S&P 500 normally trade inversely with one another. That means as stocks rise, the VIX falls and vice-versa. Even as stocks returned to record highs last month, the VIX remained somewhat elevated. Although volatility has declined substantially this year, the VIX has yet to settle below 12.00. During the height of the Trump rally in 2017, the fear index was routinely in single digits.
As of 4:09 p.m. ET, the VIX was up 9.4% at 17.63.
Trump: Additional China Tariffs are Coming
Beginning next month, the United States will implement tariffs on all remaining Chinese goods entering the country, President Trump announced Thursday in an afternoon tweetstorm.
A duty of 10% will be applied on $300 billion worth of imports originating from China, Trump said. That’s on top of the $250 billion being taxed at a higher rate.
The United States and China just completed their first face-to-face meetings on trade in more than two months. Although Trump described the negotiations as “constructive,” he once again faulted China for reneging on a trade deal that could have been finalized as early as May. He also criticized the Chinese of not following through on their promise to purchase more U.S. agricultural goods.
Our representatives have just returned from China where they had constructive talks having to do with a future Trade Deal. We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing. More recently, China agreed to…
— Donald J. Trump (@realDonaldTrump) August 1, 2019
Trump and Chinese counterpart Xi Jinping agreed to suspend trade hostilities at the G20 summit in Japan back in June. Shortly thereafter, Treasury Secretary Steven Mnuchin said both sides were “90% of the way” to a new agreement. He didn’t say what the remaining sticking points were, though many suspect it has something to do with Chinese industrial policy.
Featured image courtesy of Shutterstock. Charts via Yahoo Finance and Bloomberg Markets.