Volatility reigned Wednesday on Wall Street as poor Chinese economic data gave way to reports that President Trump would postpone tariffs on automobiles.
The Dow Jones industrial average reversed a 190-point slide after the bullish news on the deferred auto tariffs surfaced midmorning. Within minutes, the Dow was pointing upward and closed up 116 points to finish at 25,648, a .46 percent increase on the day.
Walmart, JPMorgan Chase and manufacturing bellwether 3M were big drags on the Dow. Visa, Microsoft and Pfizer were the big gainers.
The Standard & Poor’s 500-stock index and tech-packed Nasdaq composite index also surged as investors weighed news from Asia, the tense Persian Gulf and the minute-by-minute roller coaster of Trump trade policy. The S&P closed at 2,850, up 16 points or .58 percent, with 10 of 11 sectors advancing. The tech-heavy Nasdaq composite broke above a 1 percent gain, finishing up 87 points at 7,822.
The volatility follows a relatively placid, months-long advance for stocks, which saw the three major U.S. indexes push to double-digit gains. The major indexes are less than 5 percent off their highs and are down over the last five sessions. But year-to-date gains are strong. The S&P 500 is up more than 13 percent this year. The Dow and Nasdaq have climbed 10 and 18 percent, respectively.
The good feeling ended the first week of May, after trade negotiations, which were thought to be on the cusp of a successful conclusion, began to deteriorate. On Friday Trump imposed a 25 percent tariff on $200 billion in Chinese imports to the United States. He also told aides to begin plans to hit more than $300 billion in other Chinese goods. On Monday Beijing announced it would impose tariffs on $60 billion worth of American products in retaliation.
Trump suggested in a series of tweets Tuesday morning that the two countries might still reach an accommodation on trade without resorting to tariffs on all goods sold between the nations. He followed up later by calling the standoff “a little squabble.”
Market reactions and predictions of what will happen next seemed mixed.
”This volatility is short-term nonsense,” said Michael Farr of Farr, Miller & Washington. “It’s in the country’s economic interest to reform trade with China and to get them to behave more fairly. But market gyrations in the hundreds of points based on every tweet and utterance or frown of the president or his staff seems juvenile.”
Yardeni Research president Ed Yardeni sees no end in sight.
”We are probably in for a protracted period of volatility,” Yardeni said. “These trade issues aren’t going to go away that quickly. Right now, the administration is stuck in the trenches on the China front longer than it expected.”
The delay on auto duties gives the president a respite from creating an all-out trade war on both the European and China fronts. Europe was prepared to retaliate with import fees on U.S. goods if Trump made good on the auto tariff threat.
Markets were also jolted Wednesday morning by non-China trade news. The Commerce Department said April retail sales dropped 0.2 percent, and the United States ordered non-emergency staff to leave Iraq, as tensions rose following attacks on oil tankers and Saudi Arabian petroleum facilities.
Single-family home builder sentiment reached its highest level in seven months, according to a National Association of Home Builders survey. Builders’ strong confidence in the housing market means they are more likely to build more houses.
The United States last week ordered an aircraft carrier group and other ships, along with a B-52 bomber wing, to the region based on intelligence reports showing an increased threat from Iran.
“If we see a military confrontation with Iran, there is a potential for a spike in oil prices,” Yardeni said. “In the past, oil price spikes lead to recession. Iran is dicier than anything else right now.”
Farr said the scenario over the next two years calls for 5 percent earnings increases and 2 percent economic growth.
“That’s not awful,” Farr said. “Markets don’t deserve this kind of volatility. But investors have a gnat-like attention span. Futures tanked on Iran overnight, then the president shakes some shiny car keys and people say, ‘Wait a minute. Auto tariffs. We can go up on that.’”