US Stock Market Overview – Stocks Tumble on Trade Fears

US stocks tumbled on Monday as trade tensions generated further headwinds. Volatility surged with the FIX volatility index closing near 2019 highs. The VIX closed above the 20% level for the first time since January which is a sign of more volatility to come.

Most sectors were lower, led down by a nearly 4% drop in technology shares. Utilities bucked the trend. The worst performer in the S&P 500 was Milan Labs which dropped more than 10%. Newmont was the best performer as gold prices surged and broke out. The Russell 2000 also tumbled falling back into correction territory down 12% from its most recent highs. Energy shares were under pressure as oil prices whipsawed falling 1.2% after surging higher early in the trading session. Oil prices formed an outside day which is a bearish pattern and settled on the session lows.

 

Fear of a Trade War Rattles Stocks

China announced on Monday that it will increase tariffs on $60 billion in US goods in retaliation for the Trump Administration’s decision to hike tariffs on Chinese goods. The announcement said that China will increase tariffs on more than 5,000 products to as high as 25%. Duties on some other goods will increase to 20%. Those rates will rise from either 10% or 5% previously. The retaliation comes in the wake of President Donald Trump’s decision to raise duties on $200 billion in Chinese products to 25% from 10%. The world’s two largest economies have struggled to sign a trade deal and a solution is not likely to come soon. President Trump stated on Monday that he plans to meet with Chinese President Xi Jinping next month when he travels to Japan for a summit.

Trade Negotiations Might Not Restart

The trade spat between the US and China are rising and generating negative sentiment.  Talks between US and Chinese negotiators ended Friday and there is no date for another round of talks. Reports suggests the US is giving China one month to reach an agreement or on another $325 billion of Chinese imports will receive tariffs.   The rhetoric from each side rose over the weekend suggesting that things will get worse before they get better.  President Trump was on TV saying again that the US is receiving billions of dollars from tariffs and he is happy with the current situation. In fact, US companies are now paying more for the same goods which is reducing consumption and could eventually erode growth.

Growth Projections Decline

On Monday, the Atlanta Fed’s GDPNow model showed a decline in future growth prospects and is now tracking 1.6% for the Q2, down from 1.7% previously.  The New York Fed’s Nowcast model is now tracking 2.2% for Q2 versus 2.1% the previous week.