U.S. stocks staged a major turnaround Wednesday, shaking off fears that the United States and China were inching toward an all-out trade war.
The Dow Jones industrial average swung more than 750 points from deeply negative territory to close ahead a healthy 230 points, up nearly 1 percent. The Standard & Poor’s 500-stock index and tech-heavy Nasdaq finished up 1.16 percent and 1.45 percent respectively, both erasing a sharp morning downturn.
All three measures are now out of correction territory. A correction is a 10 percent decline from the peak.
The volatility that has become the hallmark of 2018 markets was in response to the tit-for-tat tariffs announced Tuesday, when the Trump administration revealed about $50 billion in Chinese electronics, aerospace and machinery products it plans to hit with levies.
The move threatens to upend global supply chains for corporations such as Apple and Dell, raise prices for American consumers who have grown accustomed to inexpensive electronics and aggravate tensions between the world’s two largest economies.
China fired back by threatening tariffs on 106 U.S. products, including on soybeans, cars and some airplanes, in the latest escalation of a trade war between the world’s two largest economies.
The news had an immediate impact on markets, where there is broad concern that the current back and forth between the world’s two countries will spiral out of control, putting a hard brake on a humming world economy and what has been a long, sturdy bull market.
Much of Wall Street believes the economy is fundamentally strong, but is roiled by headlines over trade and President Trump’s incessant tweets. That fact was reinforced Wednesday when a jobs report showed private payrolls added 241,000 jobs last month, bettering expectations. That’s five consecutive months of 200,000-plus jobs.
“There’s an old adage on Wall Street — psychology runs the market in the short term but earnings run it in the long run,” said Francis Gannon, chief investment strategist at Royce Funds. “What’s been happening the last couple of weeks is we’ve entered a new era of volatility. People forget that’s normal.”
Pulling the Dow up were Microsoft, BM, Coca-Cola, Nike and Home Depot. The big laggard was Boeing, on worries that China’s tariffs could hurt some of the aircraft maker’s business. The aerospace giant has been one of the best performers among the 30 members of the blue chip composite in the last year. United Technologies and chip maker Intel were also lagging.
Nine of the 11 major sectors finished with gains, with only materials and energy going negative. The big leaders were consumer discretionary, telecom, consumer staples, health care and real estate.
The Trump administration tried to calm markets by taking to the airwaves and to Twitter, where the president tried to dispel fears of a trade war.
U.S. Commerce Secretary Wilbur Ross, appearing on CNBC’s Squawk Box on Wednesday morning, said he was dismayed by the big stock shifts.
“This response should not really have surprised anyone,” Ross said during the interview. “I’m frankly a little surprised that Wall Street was so surprised by it. This has been telegraphed for days and weeks.”
Ross called Trump a “lifelong deal maker” and cautioned that “this is not World War III.”
Trump’s top economic advisor Lawrence Kudlow appeared on Fox Business to bring a measure of calm, implying that most of the noise around tariffs and NAFTA was a negotiating tactic.
“I think at the end of this whole process, the end of the rainbow, there’s a pot of gold,” Kudlow said.
But markets hate uncertainty and are looking for some path to resolution.
“China made it clear they are willing to play tit for tat in this trade conflict,” said Ed Yardeni of Yardeni Research. “What the market is waiting for are signs that there will be some efforts to negotiate this out.”
Markets have been tossed about in 2018 after coming out of a calm and prosperous 2017. Investors said get used to it.
“Obviously investors do not like this type of uncertainty, and so it is not surprising that volatility has risen,” said Wayne Wicker, chief investment officer at ICMA Retirement Corp. “In looking back over the last week or so, the Dow has incurred a number of days of huge point moves. If you look back to 2017, the average move in the Dow was just 68 points. So volatility is back.”
At a news conference on Wednesday, Chinese officials stressed that Beijing is willing to work with the White House.
“If someone wants a trade war, we will fight to the end. If someone wants to talk, our door is open,” said Wang Shouwen, vice minister of commerce.
Zhu Guangyao, vice minister of finance said both sides were “showing their swords and making demands,” but needed to get back to the negotiating table.
Trump tweeted his own take on the news. “We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S.,” he wrote, “Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!”
When U.S. exports to China are factored in, analysts tend to put the trade deficit in goods between the two countries closer to $375 billion.
Even the talk of a trade war has set investors on edge.
“It’s the same concerns about the potential of a trade war. China made it clear they are willing to play tit for tat in this trade conflict,” said Ed Yardeni of Yardeni Research. “What the market is waiting for are signs that there will be some efforts to negotiate this out.”