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Dow claws out of 359-point hole to end a wild week sparked by U.S.-China trade standoff

The momentum shifts after Treasury Secretary Steven Mnuchin called negotiations ’constructive’

Traders work after the opening bell Friday at the New York Stock Exchange. Investors are closely monitoring trade talks between the United States and China. (Johannes Eisele/AFP/Getty Images)
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Stocks bounced back Friday afternoon from a deep morning slide as investors searched for good news in the fallout from President Trump’s higher tariffs on Chinese goods.

All three major U.S. indexes staged an afternoon rally that left them with gains on the day - though the broad market had its worst week of 2019.

The Dow Jones industrial averaged dropped as much as 359 points in the morning but bounced back in what amounted to a 550-point swing at its peak before closing at 25,942. The close left the Dow at a 114-point gain, or about 0.44 percent. Leading the Dow were Walmart, Procter & Gamble and Coca-Cola. The blue chips were down 2.12 percent on the week.

The Standard & Poor’s 500 index also finished to the upside Friday after diving early in the day. The S&P finished at 2,881, up 0.37 percent. All 11 S&P sectors showed gains Friday, with utilities, consumer discretionary and real estate leading the way. The S&P lost 2.18 percent for the week, its worst week of the year.

The tech-heavy Nasdaq Composite crawled back into the black as well, finishing at 7,917, six points above where it started the day.

The indexes are still close to their all-time highs May 3, and the returns remain strong so far for 2019. For this year, the Dow is up 11.4 percent, the S&P 500 up more than 15 percent and the Nasdaq ahead 19.7 percent.

The threat of higher tariffs, which took effect at 12:01 a.m. Friday, has sown unrest in global markets all week as investors and business executives try to parse the uncertainty and brace for what’s to come. Fears of the looming tariffs showed in many China-exposed companies Thursday, with Apple, Boeing and Caterpillar falling roughly 1 percent.

”You have this nervousness going into the weekend,” said Kenny Polcari of ButcherJoseph Asset Management. “The market has come under pressure over the last week and was down 3.5 percent for the week, then it turned around and took Trump’s saying the the talks did not break down as positive news. It’s still tenuous and not done yet, but the market took that as a good sign and it bounced back."

The U.S.-Chinese trade negotiations wrapped up before noon and the Chinese were preparing to leave. But U.S. Treasury Secretary Steven Mnuchin said the talks were “constructive,” leaving the possibility of a deal to be done.

The market began a choppy U-turn characterized by stops, starts and reversals throughout the afternoon.

“Investors are starting to fear that trade wars aren’t as easy to win as the president has been declaring,” said Ed Yardeni, president of Yardeni Research. “Administration officials had been raising expectations of a deal by now. Instead, they’ve raised tariffs on Chinese imports again with the prospect of prolonged negotiations and more tariffs if no progress is made soon.”

International markets seemed to stabilize during the day Friday while Chinese stock markets, after suffering big losses earlier in the week, gained. The Shanghai Composite Index rose 3.1 percent, and the Shenzhen Component Index gained 4 percent.

After closing in the red Thursday, European markets rebounded across the board Friday. France’s CAC 40 was up 0.5 percent in morning trading. Germany’s DAX was up 0.8 percent, and England’s FTSE 100 had climbed 0.4 percent.

After Trump expressed frustration with the pace of trade talks and threatened to impose steep tariffs on $200 billion in Chinese imports last weekend, negotiators failed to reach a deal this week. U.S. officials accused China of going back on prior details of the deal; China denied this. Trump’s chief trade negotiator, Robert E. Lighthizer, and Treasury Secretary Steven Mnuchin are expected to meet with China’s vice premier, Liu He, on Friday to continue negotiations.

Thursday, the Commerce Ministry said China “deeply regrets” the decision to increase the tariffs and “will have to take necessary countermeasures.”

“We hope that the U.S. and China will meet each other halfway and make joint efforts to solve the existing problems through cooperation and consultation,” a spokesman said in a statement.

Investors seem exasperated by the back-and-forth, and said it is hurting the U.S. economy.

“We’ve seen this throughout the trade war - - negative headlines, algorithms drive stocks down. I don’t like it, no investor likes it,” said Nancy Tengler of Tengler Wealth Management. "The risks are rising that the tariffs and, more importantly, the uncertainty among business leaders, will stall out both economies and consequently global growth. We still believe there will be a resolution. But the risks are rising. "

Trump defended the tariffs in tweets Friday morning, signaling that he would be willing to enact even steeper penalties in the future. In one of the tweets, Trump wrote that there was “no need to rush.” He claimed that the tariffs would “bring in far more wealth to our country than even a phenomenal deal of a traditional kind.” He also repeatedly warned China not to renegotiate the terms of the deal.

But trade experts and business groups have said Trump routinely misstates how tariffs work. Tariffs are taxes paid by U.S. companies — such as manufacturers and chemical producers — that bring in products from overseas. Though this drives up the price of Chinese products, which Trump contends is good for U.S. competitors, it also pushes up costs for U.S. companies and, ultimately, consumers.

Beyond the trade hubbub, investors were watching for Uber’s highly anticipated initial public offering Friday, with the ride-hailing giant pricing at $45 a share, lower than the company initially indicated. Uber finished Friday at $41.57, down $3.43, or 7.6 percent.