US Stock Market: Fear Overcomes Hope

The major U.S. equity indexes finished lower on Friday after giving back earlier gains. Optimism over the start of low-level trade talks between the United States and China helped drive the indexes higher shortly after the opening as investors increased bets that these talks would lay the groundwork for the higher-level negotiations that are scheduled to begin in early October.

In the cash market on Friday, the benchmark S&P 500 Index settled at 2992.07, down 14.72 or -0.53%. The blue chip Dow Jones Industrial Average closed at 26935.07, down 159.72 or -0.63% and the technology-based NASDAQ Composite finished at 8117.67, down 65.21 or -0.85%.

Pessimism filled the markets late Friday turning a positive day into a negative day after a Chinese delegation canceled a visit to U.S. farms in Montana and officials headed back to China earlier than planned.

An Overreaction?

The sudden itinerary change put a damper on U.S.-China trade optimism, reversing stock market gains, but investors seem to be the only ones showing displeasure, which leads me to believe it was an overreaction that sent stocks lower. Just like in May when investors were overly optimistic about a pending trade deal, investors faced a similar situation last week as they continued to press stocks higher on the hope that last week’s low-level talks would be the first steps towards a trade deal between the two economic powerhouses.

Experts have been warning investors for weeks not to expect too much from the high-level trade talks in early October so it goes without saying that investors shouldn’t have placed so much weight on the outcome of last week’s low level talks.

No Concern from the White House or China

The surprise move by the Chinese delegation may have rattled investors but White House officials seemed to take it in stride. Furthermore, President Trump had no response on Twitter, which means the event has largely been dismissed.

In a brief statement Friday, the Office of U.S. Trade Representative sounded a positive note on the talks. “These discussions were productive, and the United States looks forward to welcoming a delegation from China for principal-level meetings in October,” the statement said.

China’s Commerce Ministry, in a brief statement, described the talks as “constructive”, and said they had also had a good discussion on “detailed arrangements” for the high-level talks in October.

“Both sides agreed to continue to maintain communication on the relevant issues,” it added, without elaborating.

What It All Means

Friday’s sell-off only means it’s hard to sustain rallies build on hope because fear will eventually overcome hope.