Trump Triggers Volatile Two-Sided Trade as Fear Gauge Hits More Than Four Month High

Volatility was the theme on Thursday as the major Wall Street stock indexes posted a mostly lower, but two-sided trade before settling down for the session. The selling pressure actually began in the pre-market session on Wednesday after President Trump said that China “broke the deal” in the on-going U.S.-China trade talks. Stocks rebounded at the mid-session after falling more than 1% earlier in the session but recovered much of those losses after Trump said there could still be a trade deal.

In the cash market, the benchmark S&P 500 Index settled at 2870.72, down 8.70 or -0.31%. The blue chip Dow Jones Industrial Average closed at 25828.36, down 138.97 or -0.54% and the technology-based NASDAQ Composite finished at 7910.59, down 39.73 or -0.44%.

Trump Drives the Market Lower

At a rally in Florida on Wednesday evening, Trump ignited today’s early sell-off after he attributed his recent threat of increased tariffs to Beijing’s lack of commitment to the negotiating process.

“By the way, you see the tariffs we’re doing? Because they broke the deal. They broke the deal,” Trump said. “So they’re flying in, the vice premier tomorrow (Thursday) is flying in – good man – but they broke the deal. They can’t do that, so they’ll be paying.”

Trump Drives the Market Higher

Stocks rebounded from steep intraday losses on Thursday after Trump struck a more optimistic tone when asked if he would speak with Chinese President Xi Jinping.

“Well, he just wrote me a beautiful letter, I just received it, and I’ll probably speak to him by phone,” Trump said.

Trump went on to say Xi’s letter expressed a desire to come to an agreement. “Let’s work together, let’s get something done,” Trump said, describing the letter.

Trump’s comments triggered a strong intraday short-covering rally as bargain-hunters snapped up relatively cheap shares on the news. Before Trump’s remarks Thursday afternoon, the Dow Jones Industrial Average had fallen more than 400 points.

The President also said it might be possible for China and the U.S. to strike a deal this week. “It’s possible to do it, they’re all here. The vice premier one of the most respected men one of the highest officials in China is coming,” he said.

Heightened Volatility This Week’s Theme

After months of quiet trade, a gauge of investor anxiety, rose for the fourth consecutive session and is at its highest level in more than four months.

The CBOE Volatility Index, a measure of the 30-day implied volatility of the S&P 500 known as the “VIX” or the “fear gauge,” hit a fresh high of 23.38 on Thursday, its highest level since January 4.

After a mostly calm stock market the first five months of the year, activity in the options market picked up this week as investors were spooked by escalating trade tensions between the United States and China.