U.S. Stocks Slide After Trump Signals Further Delays to China Deal

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12/03/2019 | 10:25 pm

By Michael Wursthorn and Anna Isaac

The Dow Jones Industrial Average fell 280 points Tuesday after President Trump suggested a trade war with China could continue well into next year while also threatening new tariffs on several more countries.

Twenty-nine of the 30 stocks in the blue-chip index had fallen at one point during a day in which the index lost more than 400 points at its low. By day's end, stocks recovered a bit, leaving the S&P 500 0.7% lower and the tech-heavy Nasdaq Composite Index down 0.6%.

The Dow and other major indexes early in the day pulled back after Mr. Trump said he had "no deadline" for reaching a trade accord with China during a meeting with the North Atlantic Treaty Organization secretary-general. He added that he liked "the idea of waiting until after the election" to reach a deal.

The pronouncements jolted investors, who had expected the U.S. and China to reach a "phase-one" trade deal this month. Such a move would have likely staved off further tariff increases and signaled to investors that the two sides were working to de-escalate tensions after more than a year of contentious negotiations.

Now, that seems less likely, leading investors to pull back from risky assets, such as stocks, and load up again on investments considered safer during periods of economic turbulence, including gold and bonds. Trade tariffs have weighed on corporate profits of manufacturers, tech and other companies all year, and a protracted trade fight will further eat into profit margins, analysts said.

"It's extremely difficult to base any investment thesis around trade, given how challenging the protagonists are," said Colin Reedie, co-head of global fixed income at Legal & General Investment Management. "It's been a fairly bullish risk environment, and markets are squeezing higher toward the end of the year, so they are a little bit more vulnerable to bad news."

Tuesday's losses also appeared to factor in Mr. Trump's threat to expand tariffs beyond imports from China. Over the past two days, the Trump administration has proposed new levies on goods from France, Brazil and Argentina.

The Dow industrials fell 364 points to 27417 in recent trading, on pace for its biggest single-day decline since Oct. 2. The S&P 500 declined 1%, while the Nasdaq Composite also slipped 1%.

During a conversation with reporters Tuesday, Mr. Trump described the day's stock-market losses as "peanuts" and said he prefers to follow employment figures, which have remained strong most of the year.

"I don't watch the stock market," Mr. Trump said, "I watch jobs."

Tuesday's declines, however, knocked major U.S. stock indexes further from their records, underscoring the negative impact trade tariffs continue to have on the market.

All three benchmarks fell Friday during a light session of trading following the Thanksgiving holiday, proceeded by heavier losses Monday on disappointing manufacturing data and threats from Mr. Trump to restore tariffs on steel and aluminum imports from Brazil and Argentina.

Including Tuesday's losses, the Dow, S&P 500 and Nasdaq are each down more than 2% from their Nov. 27 all-time highs, a mark Mr. Trump had touted on Twitter just before the Thanksgiving holiday.

"Opening a new trade war could prove more detrimental to U.S. equities than the conflict with China has been," Jonas Goltermann, a senior economist at Capital Economics, wrote in a note Tuesday morning.

Mr. Goltermann said big U.S. companies, especially in the tech sector, have a lot to lose if the European Union were to take a tougher stance. U.S. investment banks also have significant exposure to Europe and could be a target for EU regulators, Mr. Goltermann added.

Trade-sensitive stocks led the Dow industrials lower. Shares of Caterpillar fell 2.1% along with other industrial stalwarts, including 3M and Boeing. Apple also fell, shedding 2.3%. Merck was the only blue-chip stock in the green, rising less than 0.1%.

Banks stumbled alongside the pullback in bond yields, which tends to hurt lenders' profitability. Shares of Goldman Sachs Group and JPMorgan Chase fell 2.8% and 1.8%, respectively.

The declines reverberated through the stock market Tuesday well beyond just the Dow. Shares of tech, industrial, consumer discretionary and financial stocks in the S&P 500 all fell more than 1%.

In Europe, the regional benchmark, the Stoxx Europe 600, fell 0.6%. In Asia, Japan's Nikkei slipped 0.6%. Hong Kong's Hang Seng shed 0.2%.

Investors meanwhile rotated into shares of utility companies and real-estate firms, considered bond proxies for the hefty dividends they pay. Utility stocks in the broad S&P 500 added 0.5%, while shares of real-estate companies rose 0.6%.

Other haven assets also rallied as investors reassessed the potential for any kind of trade agreement between the U.S. and China.

Gold rose more than 1%, while the yield on the benchmark 10-year U.S. Treasury note fell to 1.711% from 1.835% a day earlier as prices moved higher, according to Tradeweb.

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com and Anna Isaac at anna.isaac@wsj.com

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