Stocks took a nosedive and bond prices spiked after President Donald Trump said the U.S. would raise more tariffs on Chinese goods, increasing the stakes in an ongoing trade battle and more in Thursday’s Stock Market Update.
The market had been on track for its biggest gain in nearly two months Thursday. The Dow Jones Industrial Average was up nearly 300 points but plunged as much as 315.
The escalation in the long-running and costly trade dispute comes only a couple of days after both sides resumed negotiations. In a series of tweets, Trump noted that while the slow-moving trade talks have been “constructive,” China has not followed through on some prior agreements, including the purchase of large quantities of U.S. agricultural products.
The new tariff would take effect Sept. 1. The U.S. has already applied tariffs of 25% on $250 billion worth of goods from China. Beijing has retaliated with tariffs on $110 billion in American goods, including agricultural products, in a direct shot at Trump supporters in the U.S. farm belt.
Companies that rely heavily on doing business with China took the brunt of the selling. Apple quickly went from a gain of 1.4% to a loss of 2.1%. Electronics retailer Best Buy went from a slight gain to a drop of 10.8% in heavy trading.
Banks, industrials and energy companies also fell. Utilities and real estate stocks rose as traders shifted money into more stable, high-yield stocks. Bond prices spiked as traders sought safety. The yield on the 10-year Treasury dropped to the lowest it’s been since the 2016 election. The price of U.S. crude oil skidded almost 7%.
The afternoon sell-off puts the market on track to extend its losses for the week. The S&P 500 had its worst day in two months Wednesday after the Federal Reserve’s latest interest rate policy signals disappointed investors.
STOCK MARKET UPDATE
KEEPING SCORE: The S&P 500 fell 26 points, or 0.9%, to 2,953. The Dow lost 280 points, or 1%, to 26,583. The Nasdaq gave up 64 points, or 0.8%, to 8,111. The Russell 2000 index of small companies slid 1.5%.
BONDS: Prices for U.S. government bond rose sharply, sending yields even lower. The yield on the benchmark 10-year Treasury fell to 1.89%, the first time it’s been below 2% since July 3. That yield, a benchmark used to set interest rates on mortgages and other loans, has been declining steadily since November, when it traded as high as 3.23%.
Meanwhile, the yield on the 2-year Treasury note slid to 1.74% from 1.87% late Wednesday, a very large move.
The latest jump in bond prices is signaling that investors still feel there is a risk of an economic downturn, said Michelle Girard, chief U.S. economist at NatWest Markets. It also comes a day after the Fed cut its benchmark interest rate for the first time in a decade to shore up economic growth.
Stocks slumped late Wednesday after Federal Reserve Chairman Jerome Powell suggested the central bank was not about to embark on an extended cycle of lowering interest rates, as many investors had hoped.
“The feeling remains that this is not going to be one-and-done and the Fed is still going to have to lower rates again this year,” Girard said.
CHIPPED CHINA: Qualcomm fell 2.6% after the chipmaker gave investors a surprisingly weak profit and revenue forecast because of problems in China. A ban on exports to China’s Huawei, which is part of the ongoing trade war between the U.S. and China, is hanging over the company. Meanwhile, demand is lower in China as the company’s customers temper new phone launches for the remainder of 2019 and focus on the launch of faster 5G phone technology next year.
SWEET AND SAVORY: Kellogg rose 9.2% after the maker of breakfast cereal and other food products beat Wall Street’s second quarter profit forecasts. The company reported growth in its key North America market on sales of Pringles, Pop Tarts and Eggo waffles.
LOADED TACOS: Yum Brands rose 3.9% after the company reported surprisingly good second quarter profit on sales gains for its KFC, Pizza Hut and Taco Bell restaurants. Sales at existing locations for each restaurant rose more than Wall Street had forecast.
EARNINGS: Traders continued to pore over a steady flow of corporate earnings Thursday, with several big-name companies reporting surprisingly good results. The latest round of reports has been better than Wall Street initially expected just a month ago.
Investors still have some key financial reports to look out for this week. Oil companies Exxon and Chevron will report results on Friday. The government will also release its employment report for July on Friday.
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