US Stock Market Overview – Stocks Tumble and Volatility Surges as China-US Trade Dispute Continues

US stock prices tumbled and volatility surged, as a trade war with China became more of a reality. The Dow Jones Industrial Average had its worst day since the first trading day in January. While the Chinese trade team is scheduled to meet with the US on Wednesday, a revised draft sent to the US over the weekend, generated the tweets from President Donald Trump on Tuesday. The word is that there are many vested Chinese companies that do not want to see a deal with the US that puts a hard line on penalties for intellectual property. It also appears that last the first quarter growth numbers in the US have hardened President Trump as he believes he has the upper hand following a 3.2% growth number.

All three major average were lower on Tuesday. Crude oil also declined, All sectors were lower, led down by Healthcare and Technology.  Utilities were the best performing sector. The worst performer in the S&P 500 index was Mylan Labs which tumbled 23.8%.

A Deal Could Take a While

Despite Trump’s tweets and threats, China is sending its top trade envoy to Washington to resume negotiations and confront US demands that Beijing detail the laws it would change as a part of a trade deal, ahead of a deadline set by President Trump to raise tariffs on Chinese goods. After two days of uncertainty in which President Trump called for the higher tariffs and Chinese officials considered pulling out of the talks.

No quick deal is likely in the short-term and that trade tensions between the two largest economies are likely to continue into the second half of the year.  This translates into heightened economic uncertainty just as these two economies were showing signs of stability and resilience.

Volatility Surges

Implied volatilty hit its highest levels since early January of 2019 and appears to be head to test the highs seen in December of 2018. The VIX volatility index which measures the “at the money” strike prices for the S&P 500 index, surged higher rising 28%. As the VIX rises the cost to purchase options that protect against an adverse move in stock prices rose. With the VIX rising to levels near 20, the time to purchase protection has likely passed. Many believe that a deal between the US and China will likely occur and with President Trump watching the stock market, the pressure will be placed on the US to make a deal.

Lyft Reports Strong Financial Results

Lyft, tthe ride-hailing company reported revenue of $776 million in the Q1, up 95% from a year earlier and better than many analysts expected. Lyft’s loss ballooned to $1.1 billion, largely due to $859 million of stock-based compensation, an expense related to the company’s initial public offering in March.