Wall Street witnessed a broad-based market decline on Tuesday as trade-related conflicts between the United States and its two largest trading partners – China and Canada – reignited once again. All three major stock indexes closed in negative territory. However, losses were restricted to some extent due to robust U.S. manufacturing data.
The Dow Jones Industrial Average (DJI) closed at 25,952.48, declining 0.1%. The S&P 500 Index (INX) was down 0.2% to close at 2,896.72. The Nasdaq Composite Index (IXIC) closed at 8,091.25, decreasing 0.2%. A total of 6.56 billion shares were traded on the first trading day of September, higher than the last 20-session average of 6.11 billion shares. Decliners outnumbered advancers on the NYSE by 1.90-to-1 ratio. On the Nasdaq, decliners had an edge over advancers by 1.42-to-1 ratio. The CBOE VIX increased 2.3% to close at 13.16.
How Did the Benchmarks Perform?
The Dow continued to lose for the third straight day with 18 components of the 30-stock blue-chip index closing in the red while 12 finished in the green. NIKE Inc. (NKE – Free Report) suffered the most with a drop of 3.2% in its share price after the company introduced controversial NFL player Colin Kaepernick as its new ad campaigner. NIKE carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The S&P 500 fell below its newly achieved 2,900 level due to a decline of 1.2% in Communication Services Select Sector SPDR (XLC), 0.9% decline in Real Estate Select Sector SPDR (XLRE) and 0.8% drop in Health Care Select Sector SPDR (XLV). Notably, 8 out of 11 sectors of the benchmark index closed in the red while three ended in the green.
The tech-heavy Nasdaq Composite reversed its previous day’s winning trend led by weak performance of large-cap tech stocks.
U.S. – Canada Trade Talk Still Inconclusive
Last week, the United States and Canada failed to reach a new bilateral agreement to replace the 24-year old “North American Free Trade Agreement” (NAFTA) which was formulated between the United States, Mexico and Canada. Notably, on Aug 27, Mexico and the United States entered into a new bilateral trade deal.
Over the weekend, Trump threatened to eliminate Canada from the new NAFTA pact in a tweet. Trump also warned the U.S. Congress not to intervene in the Canada deal. In fact, Trump has threatened to “simply terminate NAFTA entirely” if Congress intervenes. However, Richard Trumka, president of the largest U.S. labor unions, AFL-CIO, stated that a new NAFTA would not work without Canada.
However, the two sides agreed to continue negotiations this week as Trump stated that he still stands by his previously stated time frame of late November to form a new deal with Canada in order to replace NAFTA.
U.S. – China Tariff Conflicts Escalate
On Aug 30, Bloomberg reported that President Trump is moving ahead with fresh tariffs worth $200 billion to be imposed on a vast array of Chinese goods ranging from selfie sticks to semiconductors. The time line for submitting comments from companies and members of the public will end on Sep. 6. Trump is considering levying next round of tariffs by the end of this week. The two sides have already imposed $50 billion tariffs on each other.
On Sep 4, the Institute for Supply Management (ISM) reported that U.S. manufacturing index has jumped to a 14-year high in August. The index of national factory activity for the month of August stood at 61.3, highest since May 2004. August’s reading was better than the consensus estimate of 57.7 and July’s reading of 58.1. Notably, any reading above 50 indicates manufacturing expansion, which accounts for 12% of the U.S. GDP. Moreover, the new orders sub-index increased to a reading of 65.1 in August from 60.2 in July.
The Commerce Department reported that U.S. construction spending for the month of July inched up 0.1%, below the consensus estimate of 0.5%. Investment in public construction projects and federal government construction projects rose 0.7% and 2.5%, respectively. However, spending on private construction projects declined 0.1%.
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