Trade Tensions Get More Serious
Stocks plummeted and then rebounded somewhat at the end of the trading session on Monday because of the latest trade tensions. The S&P 500 ended the day down 1.37% and the Nasdaq fell 2.09%. The Dow fell 1.33% which pushed it below its 200 day moving average for the first time since June 2016. I don’t think this is important because the market is being driven by trade headlines, not the technicals. Even the Russell 2000, which has avoided the weakness from trade tensions in the past few weeks, declined 1.67%.
The trade situation started with the Wall Street Journal report on Sunday which stated the Trump administration will stop Chinese firms from making investments in American technology and block American firms from exporting more technology to China. Specifically, the proposal would prevent companies which have at least 25% Chinese ownership from buying firms with “industrial significant technology.” That’s a vague term which can easily be utilized to prevent many transactions. Eliminating Chinese acquisitions takes a buyer out of American markets which should push stocks lower.
On Monday, Steve Mnuchin tweeted that these actions will be affecting “all countries trying to steal our technology.” Usually when government officials try to clarify situations which are generating controversy, they try to quell worries. However, this made worries much worse because he added potential tariff targets. Instead of clarifying the issue, it became opaquer because we don’t know the other countries which are supposedly stealing American technology.
As I mentioned, there was a bounce late in the trading session on Monday. That occurred because President Trump’s trade adviser Peter Navarro came on CNBC where he stated “There’s no plans to impose investment restrictions on any countries that are interfering in any way with our country. This is not the plan.” It appears the President wants to quell the market while continuing to negotiate to get the best deal. In my opinion, the bulls should want a quick stock market correction on trade tensions because then the President will fold his cards, meaning no more tariffs will be issued. Without these trade tensions, the S&P 500 would be about 100 points higher.
