UPDATE: Dow books a 150-point loss after President Trump says he will hold Friday news conference on China
By William Watts, MarketWatch , Andrea Riquier
U.S.-China tensions threaten economic recovery rally after three days of gains
Stocks closed lower Thursday, skidding into negative territory in the final hour of trade, after President Donald Trump said he would hold a news conference on China on Friday, rattling investors who had been enjoying a rally on optimism about an economic recovery from the coronavirus pandemic.
hat are major indexes doing?
The Dow Jones Industrial Average closed down 147.63 points, or 0.6%, at 25,400.64, well off its intraday high at 25,758.79, a gain of more than 210 points. Meanwhile, the S&P 500 lost 6.40 points, or 0.2%, to end at 3,029.73. The Nasdaq Composite Index finished 43.37 points, or 0.5%, lower at 9,368.99.
The Tell:Stock-market bull who called the bounce off March lows says economy bottoming, now sees S&P 500 at 3,250 by August (http://www.marketwatch.com/story/stock-market-bull-who-called-the-coronavirus-relief-rally-now-sees-sp-500-at-3250-by-august-2020-05-27)
What's driving the market?
President Trump's announcement of a news conference on China came amid growing worries that tensions between world's largest economies may put economic recovery in jeopardy.
The U.S., Australia, Canada and the U.K. governments issued a joint statement (http://www.marketwatch.com/story/uk-australia-and-canada-join-trump-administration-in-condemning-chinese-national-security-law-for-hong-kong-2020-05-28)Thursday reiterating their "deep concern regarding Beijing's decision to impose a national security law on Hong Kong," after China's parliament, the National People's Congress passed legislation (http://www.marketwatch.com/story/chinese-lawmakers-endorse-hong-kong-national-security-law-2020-05-28)Thursday that could greatly curtail democratic freedoms.
The U.S. on Wednesday said it no longer considered Hong Kong highly autonomous (http://www.marketwatch.com/story/chinese-lawmakers-endorse-hong-kong-national-security-law-2020-05-28)under a 1992 law, a move that could lead to measures to limit Hong Kong's trade privileges and open the door to sanctions against individuals the U.S. sees as suppressing civil liberties in the territory.
"I wouldn't say this is a major downturn to be too concerned about it," said Randy Frederick, vice president of trading and derivatives at Charles Schwab, of the slide in the stock market on Wednesday.
"Obviously, President Trump has been escalating the rhetoric...but how this all plays out is something that could take time, he said.
"But what's the U.S. going to do? Launch a military strike against China? I don't see that happening," Frederick said.
Still, investors shouldn't discount those tensions, said Andrew Smith, chief investment strategist of Dallas-based Delos Capital Advisors. "We're in an inflection point," Smith told MarketWatch, and it is possible to see pullbacks of as much 5-10% as investors rotate toward smaller-cap, value-oriented names.
Capitol Report:Revoking Hong Kong's special status is Trump's 'nuclear option' that could trigger irrevocable U.S.-China split, analysts warn (http://www.marketwatch.com/story/revoking-hong-kongs-special-status-is-trumps-nuclear-option-that-could-trigger-irrevocable-us-china-split-analysts-warn-2020-05-27)
"We're in what we call a very typical business cycle dynamic," Smith said. "We have a lot of ground to pick up, a lot of things to fix, but we think everything is moving in the right direction. People shouldn't worry about valuations. They play second fiddle to market dynamics. Money has to go back to work," he added.
On the economic front, another 2.13 million Americans filed for first-time unemployment benefits in the most recent week, the Labor Department said (http://www.marketwatch.com/story/us-initial-jobless-claims-rise-212-million-in-latest-week-while-continuing-claims-decline-2020-05-28). That was in line with the consensus forecast among economists surveyed by MarketWatch.
Orders for durable goods plunged 17.2% (http://www.marketwatch.com/story/durable-goods-orders-fall-172-in-april-vs-forecasts-for-182-drop-2020-05-28) in April, the Commerce Department said, a slightly less steep fall than economists had expected, but GDP contracted at an annual 5% pace (http://www.marketwatch.com/story/us-gdp-contracted-5-in-first-quarter-instead-of-48-2020-05-28)in the first quarter instead of 4.8%, revised government data showed, slightly worse than anticipated. And home-contract signings fell 21.8% in April, the National Association of Realtors said, the biggest such decline in the history of that metric.
For the week, however, the U.S. stock indexes are higher, riding on optimism over businesses reopening, with shares of technology companies lagging behind after leading the bounce back from March 23 lows on expectations they would be most insulated or even benefit from the lockdown, analysts said. The S&P 500 and Dow were up 2.5% and 3.8% week to date, respectively, while the Nasdaq is up 0.5% this week.
While stocks appear expensive based on forward earnings estimates, "what seems to be priced in at this stage is the economy will recover much faster than previously estimated, the pandemic will soon end and life return back to normal," said Hussein Sayed, chief market strategist at FXTM in a note.
See: Corporate profits drop in first quarter by most since 2008 Great Recession (http://www.marketwatch.com/story/corporate-profits-drop-in-first-quarter-by-most-since-2008-great-recession-2020-05-28)
Separately, New York Federal Reserve Bank President John Williams, speaking at an online event, said that the central bank has "more powerful" tools than negative interest rates, according to media reports (https://www.reuters.com/article/us-usa-fed-williams/ny-feds-williams-says-central-bank-has-tools-more-powerful-than-negative-rates-idUSKBN2342SL).
Which companies are in focus?
How are other markets trading?
In global equities, the Stoxx Europe 600 index closed 1.6% higher, at 355.47. In Asia, the Nikkei added 2.3%, and Hong Kong's Hang Seng Index closed 0.7% lower.
The 10-year Treasury note yield gained 2.6 basis points (http://www.marketwatch.com/story/treasury-yields-edge-higher-as-traders-tackle-rush-of-us-economic-data-2020-05-28)to 0.703% as traders interpreted "less-bad" economic data (http://www.marketwatch.com/story/treasury-yields-edge-higher-as-traders-tackle-rush-of-us-economic-data-2020-05-28) as a reason to rotate toward riskier assets. Bond prices move in the opposite direction of yields.
The greenback lost ground against its major rivals, with the ICE U.S. Dollar index down about 0.7%.
West Texas Intermediate crude futures for July (http://www.marketwatch.com/story/oil-lower-as-rising-crude-inventories-stir-doubts-over-recovery-in-demand-2020-05-28) delivery powered 2.7% higher to end at $33.71 a barrel, brushing off earlier doubts about demand (http://www.marketwatch.com/story/oil-lower-as-rising-crude-inventories-stir-doubts-over-recovery-in-demand-2020-05-28). June gold advanced by about 0.1%, to settle at $1,728.30 an ounce on the New York Mercantile Exchange.
See:Out-of-whack stock and bond prices say something troubling about the coronavirus economy (http://www.marketwatch.com/story/schizophrenic-stock-and-bond-prices-say-something-troubling-about-the-coronavirus-economy-2020-05-20)
-William Watts; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
May 28, 2020 16:40 ET (20:40 GMT)
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