U.S. Stocks Extend Brutal Slide as Markets Brace for Extended Trade War

The Dow and broader U.S. stock market plunged anew on Friday as the threat of an all-out trade war between the United States and China clouded investors’ outlook on equities. President Trump’s latest tariff escalation has triggered a sharp rise in volatility, with the CBOE VIX exceeding 20 for the first time since mid-May.

Dow, S&P 500, Nasdaq Extend Slide

Equities were down across the board Friday, magnifying their losses for the week. The Dow Jones Industrial Average was down by as much as 334 points before paring losses later in the session. It closed down 98.41 points, or 0.4%, to 26,485.01, its fourth consecutive decline.

The broad S&P 500 Index of large-cap stocks made it five straight declines, falling 0.7% to 2,932.05. Eight of 11 primary sectors recorded losses, led by information technology.

Plunging tech shares weighed on the Nasdaq Composite Index, which fell 1.3% to close at 8,004.07.

The CBOE Volatility Index, commonly known as the VIX, spiked more than 12% on Friday to reach 20.11, the highest in two-and-a-half months. It would eventually give back most of its gains to settle slightly higher for the day.

U.S. Labor Market Maintains Expansionary Pace

The U.S. economy added workers at a steady pace last month, as the jobless rate held near 50-year lows and hourly wages improved faster than expected.

Those were the key takeaways from the Department of Labor’s July nonfarm payrolls report, which was released Friday morning at 8:30 a.m. ET.

Nonfarm employment rose by 164,000 during the month, matching forecasts and down from a revised 193,000 hiring pace in June. The unemployment rate was unchanged at 3.7% even as workforce participation improved slightly.

Average hourly earnings, which are a proxy for wage inflation, rose 3.2% year-over-year. Analysts were calling for annual gains of 3.1%.

Although hiring remains robust, the labor market recovery is clearly losing steam. As The Wall Street Journal notes, that’s to be expected now that the U.S. expansion is the longest on record.

China Trade Tensions Weigh

Investors largely shrugged off the employment data amid signs that the United States and China were inching toward a full-blown trade war. Investment flows between the two countries has dropped to the lowest in five years and could be heading even lower now that China has vowed to respond to President Trump’s latest tariff escalation.

On Thursday, President Trump said an additional duty of 10% will be levied on virtually all imports from China. The announcement came less than a day after a U.S. trade delegation wrapped up its meeting with Chinese officials in Shanghai. The new import duties will be applied on September 1.

The tariff war has cost China top spot on the U.S. trade list, according to The Wall Street Journal.

“The total value of bilateral trade with China fell short of that with both Canada and Mexico for the first time in more than a decade,” WSJ reported Friday.

Compared with last year, U.S. imports from China declined 12% in the first six months of the year, while exports plunged 19%, according to the Department of Commerce.

Featured image courtesy of Shutterstock. Chart via Yahoo Finance. 

Author:
Chief Editor to Hacked.com and Contributor to CCN.com, 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