Trade War Fear Worries Investors
The stock market took some hits this Monday due to fears of an impending trade war between the U.S. and China. The S&P 500 (S&P) lost 1.4%, but despite spending most of the session at a low, it managed to close a tick above its 50-day moving average.
On the other hand, the Dow Jones (DJI) lost 1.3% and ended up closing below its 200-day moving average for the first time in two years. The Nasdaq (NASDAQ) and Russell (RUT) were both particularly weak, losing 2.1% and 1.7% respectively.
Thankfully, the market as a whole ended up settling significantly higher than the session’s lows. While tariffs no longer seem to be on the table, trade war fears were escalated following Trump’s negative sentiments regarding Chinese investment in U.S. tech companies.
US Threatens Sanctions on Iranian Oil
The U.S. threatened to impose sanctions on countries that continue to import oil from Iran after November 4th.
This new deadline, which is much sooner than most parties expected, prompted a crude oil rally, which sent energy stocks higher. WTI crude (TPE) futures went up 3.5% to hit $70.45 per barrel, which is their highest in five weeks.
This is no small feat, considering Iranian exports this month accounted for more than 2% of the global demand. Now, there is pressure on Saudi Arabia to help compensate for the loss of Iran’s exports.
Saudi Arabia is one of the few countries with the capacity to increase their pumping in such a short period of time, and while they have already begun to show results, it is unclear as to whether or not they will be able to shoulder this burden in the long term.
Economic Growth Data Shows Slowdown
First quarter growth for the U.S. economy was trimmed to 2% from 2.2%. This downward revision in GDP was somewhat unexpected, especially since tax reforms should have jolted the economy.
While this revision largely reflects lower spending on health care, it may have other implication that could cause investors to feel cautious. Many investors have grown increasingly concerned that the economy could be in the late stage of its cycle, meaning that its current stability may not last long.
Another explanation could simply be that these numbers reflect the uncertainty caused by trade drama, which has been responsible for many of the more volatile market events from May especially.
Nevertheless, all indications for the second quarter point to stronger growth.