Market Snapshot: S&P 500, Dow close lower for third session on rising fears of trade war

The S&P 500 and Dow industrials finished down for a third session Wednesday as fears of a potential trade war resurfaced after President Donald Trump announced that his administration will seek to trim the U.S.’s trade deficit with China by $100 billion via tariffs.

How did the major indexes fare?

The Dow Jones Industrial Average DJIA, -1.00%  fell 248.91 points, or 1%, to 24,758.12. The S&P 500 index SPX, -0.57% slid 15.83 points, 0.6%, to 2,749.48. The Nasdaq Composite Index COMP, -0.19% shed 14.20 points, or 0.2%, to 7,496.81.

Both the materials and industrial sectors were among the biggest losers, as they are seen to have the most exposure to trade issues. Boeing Co. BA, -2.48%  was a notable Dow decliner, falling 2.6%. A report by the New York Times suggested that Boeing is a prime target for China to retaliate against in the event of a full-blown trade war.

What drove the markets?

The producer-price index showed wholesale inflation up 0.2% in February, above the 0.1% that had been expected, but down from the 0.4% advance in January.

U.S. retail sales fell 0.1% in February, the third straight monthly decline. However, sales grew 0.3% if autos and gas are stripped out.

The data helped soothe concerns that inflation was picking up, which could have led to an environment where the Federal Reserve has to become more aggressive in raising interest rates, something investors have cited as a primary concern for stocks.

Traders also continued to monitor the situation in the White House in the wake of major personnel changes. Trump recently fired Secretary of State Rex Tillerson and replaced him with Central Intelligence Agency Director Mike Pompeo. Meanwhile, Lawrence Kudlow, an economic commentator, has been officially named as director of the National Economic Council to replace Gary Cohn, who resigned earlier this month. Kudlow has supported Trump’s tax cuts but opposes tariffs.

A major theme in recent trading has been the issue of trade protectionism and tariffs, and investors are waiting to see whether the new appointees, if confirmed, will support or oppose such policies.

What were strategists saying?

“There are already fears of policy mistakes and trade protectionism, and when you layer in White House uncertainty those fears grow,” said Art Hogan, chief market strategist at Wunderlich Securities. “Will the new people be more protectionist? Right now the economy and earnings are solid, but are we going to make a trade or policy mistake that could slow earnings or lead into a recession that will turn this market over?”

Hogan also said the retail sales numbers were somewhat disappointing, but if one excluded autos and gas it was generally in line with expectations. “Separately, PPI looked a little hot, but it was also in line if you [take] out food and energy. Ultimately, what the numbers don’t show is a slowdown in the economy, and what they don’t spark is fear of rampant inflation,” he said. “At the very worst this is benign, but I suspect the interpretation will be positive.”

Maris Ogg, president at Tower Bridge Advisors, said the market’s decline is not all about trade-war jitters but an absence of follow-up in positive news. “The last few economic releases have been a little soft, we’re facing the Fed meeting and with a new head, that brings some uncertainty with both the statement language and the press conference.” she said.

“The sense that Trump has probably achieved everything legislatively that he is going to achieve, especially after yesterday’s election in Pennsylvania, and finally, the perception that we will be facing tougher earnings comparisons next year” are all working to dampen investors’ appetite, according to Ogg. “All this means that at elevated valuations, buyers are getting harder to motivate.”

Which stocks were key movers?

Shares in Signet Jewelers Ltd. SIG, -20.23% sank 20% on heavy volume after the parent company for the Zales, Kay and Jared chains unveiled a restructuring plan to be carried out over the next three years.

Broadcom Ltd. AVGO, -0.24%  fell 0.2% after the chip maker said it withdrew its hostile bid to buy Qualcomm Inc. QCOM, +0.70% following Trump’s move this week to block the deal, citing national security concerns. Qualcomm rose 0.7%.

Ford Motor Co. F, +2.23%  said it was issuing a safety recall of about 1.38 million vehicles in North America, including 1.30 million vehicles in the U.S., for potentially loose steering-wheel bolts after reports of two accidents and one injury. The stock recovered from an earlier drop to rise 2.2%.

Analysts at Stifel said that new product announcements from Fitbit Inc. FIT, -1.48%  could expand the company’s user base. Shares slid 1.5%.

Shares of Century Aluminum Co. CENX, -5.24% skidded 5.2% despite J.P. Morgan lifting its price target on the stock to $29 from $18.

United Continental Holdings Inc.’s stock UAL, -2.56%  was 2.6% lower. The airline has recently drawn considerable flak after a passenger’s pet dog died in an overhead bin during a flight.

See: United had the most animal deaths in 2017

How did other markets perform?

European stocks SXXP, -0.15% were mostly lower, ignoring comments from the European Central Bank that a key bond-buying program will likely continue if underlying inflation in the region remains subdued. Asian markets closed with losses.

The ICE U.S. Dollar Index DXY, +0.08% edged up 0.1% while oil futures CLJ8, +0.33%  rose and gold futures GCJ8, -0.12%  settled marginally lower.

—Sara Sjolin and Victor Reklaitis contributed to this report

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