- Fears that the US Senate’s Hong Kong bill would disrupt trade talks hit the Dow on Wednesday.
- Dow giant Apple must now deal with the genuine likelihood of further tariffs this December.
- Stocks were pressured as Ambassador Gordon Sondland raised the odds of impeachment with a bombshell testimony in Trump’s impeachment hearings.
The Dow Jones fell more than 150 points on Wednesday after the US Senate approved a pro-Hong Kong bill, worsening the state of US-China relations.
A surprising admission of a “quid quo pro” in the impeachment hearings from a perceived Trump ally ensured that the Dow remained under pressure throughout the trading session.
Dow Jones Struggles as Political Incidents Batter the Stock Market
Minutes before the closing bell, the Dow Jones Industrial Average had nosedived 157.90 points or 0.57%, dropping the index to 27,776.12.
Of the three major US stock market indices, the Nasdaq was the weakest with a 0.71% loss, while the S&P 500 (-0.55%) and Dow Jones were close behind.
Despite the weakness in equities, the gold price was slightly lower on the day, while a smaller than expected build in oil inventories sent the price of crude soaring more than 3%.
FOMC minutes were released today, but the Fed’s outlook was mixed. That was expected, so the release had had little-to-no impact on markets.
Trump Impeachment Hearings Take Center Stage
The impeachment hearings provided substantial gravity on the Dow on Wednesday, as three days of diminishing odds were erased by the interrogation of Ambassador Gordon Sondland, the top-ranking envoy to the EU, who is also a Trump donor and appointee. Sondland testified that, in his opinion, there was a “quid quo pro.” The stock market is giving this some credence given his partisan ties to the Republican party and the president in particular.
Congress was taken aback by Sondland’s testimony, which was expected to be more useful to the GOP than the Democrats. The president responded with an aggressive criticism of Sondland, claiming he did not know the ambassador very well and reiterating he didn’t want anything from the Ukraine deals.
The state of trade relations between the United States and China remains one of the most important fundamentals for the Dow Jones.
A heady mix of sticking points is currently afflicting Trump’s plans for a phase one trade deal; both agricultural purchases and Hong Kong turmoil provide barriers to progress.
A Senate bill in favor of the Hong Kong protesters ramps up pressure on Donald Trump, who fears angering his Chinese counterpart, Xi Jinping – and triggering an even more pronounced deadlock in talks.
BK Asset Management: Stocks Ripe for a Sell-Off
Boris Schlossberg at BK Asset Management isn’t bullish on the short-term outlook for the US stock market. He sees plenty of risks for the record valuations in equities, warning that global manufacturing could face an even more significant squeeze if Trump implements his new tariffs.
The political standoff comes at a time of stalled negotiations and worries from investors that Trump Administration may escalate tariffs against Chinese goods creating a second round of contraction in global manufacturing. With risk assets at near all-time highs, the prospect of a sharp profit-taking selloff in equities remains high.
Dow 30: Apple Smoked by Tariff Fears
It was a sea of red in the Dow 30 as risk appetite plunged. There was an apparent China-centric reaction, and Apple stock dropped 1.5% in the face of dealing with fresh tariffs this December. Both of the world’s most valuable companies lost ground, as Microsoft also fell about 0.5%.
Helping to support the Dow Jones, Boeing was steady. Its 0.95% rally helped keep the index from suffering a considerably more significant loss.
The global growth risk barometer Caterpillar dipped 1.25%, while Home Depot continued to slide, losing an additional 2.15% to go with yesterday’s drop.
With only a few companies posting marginal gains, it was notable that both Chevron and Exxon Mobil were slightly higher on the day, buoyed by the sizeable rally in the price of oil.