The major indexes posted their worst day of the year on Monday as China hit back at President Donald Trump's move to accelerate tariffs on China-made goods by allowing the yuan to slip to the lowest levels against the dollar in more than a decade.
The Dow Jones Industrial Average, which was off more than 950 points during the day, finished down 767 points, or 2.9%, to 25,717. The S&P 500 fell 2.98%, and the Nasdaq dropped 3.47%.
The decline Monday was the Dow's biggest single-day decline of the year. Leading the Dow's collapse in recent trading were Apple (AAPL) , Visa (V) , and IBM (IBM) , and the escalating trade war pulled down semiconductor stocks.
August is S&P's Worst Month--Especially When Stocks See Strong YearThe People's Bank of China, the country's central bank, let the so-called onshore yuan fall past the psychologically important threshold of 7 in early Monday trading, citing in a statement "unilateralism and protectionism," as well as the expectation of additional tariffs from the U.S.
The bank said it would "not use the exchange rate as a tool to deal with external disturbances such as trade disputes."
The breach through 7, the first since May 2008, weakens the Chinese currency in international markets and theoretically makes exports more attractive by offsetting the impact of tariffs. China also instructed state-owned companies to suspend purchases of U.S. agricultural products.
China also said it may impose additional tariffs on "newly purchased US agricultural products after August 3."
Trump responded Monday by declaring that China's move was a "major violation" that should warrant reaction from the Federal Reserve. Trump said the move was "currency manipulation" but he didn't label China as a direct currency manipulator.
China dropped the price of their currency to an almost a historic low. It's called "currency manipulation." Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!
- Donald J. Trump (@realDonaldTrump) August 5, 2019Trump also tweeted that "Americans are not paying for the tariffs--they are being paid for compliments of China, and the U.S. is taking in tens of Billions of Dollars!"
Based on the historic currency manipulation by China, it is now even more obvious to everyone that Americans are not paying for the Tariffs - they are being paid for compliments of China, and the U.S. is taking in tens of Billions of Dollars! China has always....
- Donald J. Trump (@realDonaldTrump) August 5, 2019Ryan Detrick, senior market strategist for LPL Financial, said, "Trade continues to trend in the wrong direction."
"Any hopes of a quick resolution with China are fading quickly," Detrick said. "Tariffs, slowing economic data, and a more hawkish Fed are all contributing to this weakness. At the same time, don't forget the calendar. August has been the worst month of the year for the S&P 500 over the past 10 years. Now like clockwork, stocks are weak during this tricky time of the year."
"The S&P 500 and NASDAQ 100 have been hit hard by the rising trade tensions. Chinese e-commerce stocks like Alibaba (BABA) and JD.com (JD) are suffering," said David Madden, a market analyst at CMC Markets UK. "Traders are concerned the trade war will take its toll on consumer's appetite."
"The Chinese economy has been cooling, and the subdued services PMI report overnight underlines the slide in economic activity," he continued. "The U.S.-China trade spat has a technological element to it in relation to Huawei, and today the likes of Intel, Micron Technology (MU) and Nvidia (NVDA) have been unperformed. Deere (DE) shares have suffered today on the back of the agricultural import ban that was announced by the Beijing authorities."
Trump last week threatened to levy 10% tariffs on an additional $300 billion of Chinese imports and later told reporters that he might raise tariffs on Chinese goods to 25% or more if trade talks with Beijing stall.
Ten-year U.S. Treasury yields fell to a three-year low and were recently down to 1.73% as investors accelerated bets on deeper interest rate cuts from the Federal Reserve in response to what is now seen as a dangerous escalation in the U.S.-China trade war.
"Investors should not make the mistake of trying to time the markets amid today's selloff," said Mike Loewengart, vice president of investment strategy at E*Trade.
"This too shall eventually pass, and bouts of volatility in recent months have shown this can happen quickly. That said, trade-induced volatility could continue to challenge investors' portfolios. Investors looking to help mitigate the effects of the trade war could consider exploring small caps which tend to have little international exposure found in large- and mid-cap multinational companies."
When President Trump Could Implement 25% Tariffs Is the Weakening Yuan Actually Currency Manipulation? U.S.-China Trade Talks: Buy Financials, Not Tech, Strategist SaysTyson Foods (TSN) shares advanced 5.1% to $84.84. The global food company on Monday posted third-quarter earnings largely in line with Wall Street forecasts, while confirming its 2019 profit guidance, but noted optimism for export markets the coming financial year. Tyson Foods is Real Money's Stock of the Day.
Shares of Boeing (BA) fell 2.5% to $331.14 following reports that the aerospace giant is preparing a major fix to the flight software linked to its troubled 737 MAX aircraft and the escalating trade dispute between Washington and Beijing.
Berkshire Hathaway (BRK.A) , (BRK.B) shares fell 2.4% to $197.86 after the financial services company posted $14 billion in second-quarter net income, up from $12 billion a year earlier.
Meanwhile, shares of gunmakers were rising following a pair of mass shootings in Dayton, Ohio, and El Paso, Texas, over the weekend. Gun sales tend to spike following these U.S. mass shootings as gun owners recognize the pressure from renewed calls for tougher gun control laws.
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