Wall Street on Friday capped a turbulent week with a late-day rally after shaking off an early slump triggered by the latest escalation in a trade war between the US and China.
The market early in the day fell sharply after the US raised tariffs on US$200 billion of Chinese goods when negotiators failed to reach a deal.
Hours later, remarks from US President Donald Trump and US Secretary of the Treasury Steven Mnuchin gave investors reason for optimism.
First, Mnuchin told CNBC that the trade talks had been “constructive,” which spurred the market’s rebound.
Then, in a late-afternoon tweet, Trump suggested that the tariffs could be removed and that the trade talks “will continue.”
The afternoon pickup led to a broad reversal in the market, leaving only healthcare stocks with a loss.
Still, the buying did little to blunt the overall sharp decline for stocks this week.
“Nobody wants to sell too aggressively just in case things get settled and the market rallies,” TD Ameritrade Holding Corp chief market strategist J.J. Kinahan said. “As long as they’re still talking, there’s a chance that this gets done.”
The benchmark S&P 500 on Friday rose 10.68 points, or 0.4 percent, to 2,881.40, but suffered its worst weekly loss of the year, a 2.2 percent drop from 2,945.64. The broad index, which earlier had been down 1.6 percent, has given back much of the gains it made last month, but it is still up 14.9 percent for the year.
The Dow Jones Industrial Average on Friday gained 114.01 points, or 0.4 percent, to 25,942.37, a decline of 2.1 percent from 26,504.95 on May 3. It was down as much as 358 points earlier in the day.
The NASDAQ Composite on Friday added 6.35 points, or 0.1 percent, to 7,916.94, dropping 3 percent from a close of 8,164.00 a week earlier. The technology-heavy index rebounded after having been down as much as 1.9 percent earlier in the day.
The Russell 2000 index of small company stocks on Friday also closed higher after being down much of the day. It picked up 2.94 points, or 0.2 percent, to 1,572.99, declining 2.5 percent from 1,614.02 on May 3.
The higher tariffs from the US and China’s response that it would take “necessary countermeasures” rattled investors, who had been hoping for a quick resolution to the dispute.
Confidence in that outcome had eased investors’ concerns this year, along with a more patient US Federal Reserve and solid economic data. It all added up to help push stocks to their hottest start to a year in decades.
The trade war has stressed consumers and companies with higher costs on goods. The latest tariff increase raises tariffs from 10 percent to 25 percent on US$200 billion of Chinese imports.
Trump has signaled that he might expand penalties to all Chinese goods shipped to the US.
The reaction, in the stock market was sharp this week, but even after this week’s tumult, the S&P 500 remains within 2.2 percent of its record set on April 30.
That is because many investors continue to expect the US and China to come to an agreement eventually, Ameriprise Financial Inc global market strategist Anthony Saglimbene said.
Neither country would benefit from not getting a deal, he said.
In the meantime, the US job market continues to grow and balance sheets for US households remain better than before the Great Recession.
“We have advised long-term investors to look through the noise of the next few weeks and what goes on with trade, because the economy is strong and earnings should grow better than expected,” Saglimbene said. “I wouldn’t expect the market would go down 5 or 10 percent just because we put these tariffs on. I would expect it would decline 5 or 10 percent if the trade tensions are escalating.”
However, things could get dicier, not only if the US-China talks break down, but also if the trade war intensifies on other fronts.
For example, the US might be nearing a decision on whether to impose tariffs on imports of European vehicles.
The market’s gains this year had been slow but steady up until this week.
Prior to this week, the S&P 500 only had four losing weeks this year, most of them minor. Other than that, it has been mostly up amid a mostly muted year with no major market-moving news.
The slump this week has been especially hard on technology stocks, which have far outpaced the rest of the market this year. Those companies do a lot of business in China and would stand to lose greatly if the trade war drags on.
The NASDAQ’s weekly drop was only its third this year and the biggest since late December last year. It is still up 19.3 percent this year.
Additional reporting by staff writer
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