Stock sell-off steepens as trade concerns persist
Stocks extended declines Tuesday, as Wall Street weighed the prospect of further tariffs on Chinese imports against news that negotiators from Beijing would be coming to discuss a potential resolution to the U.S.-China trade standoff.
The S&P 500 (^GSPC) fell 1.65%, or 48.4 points, as of market close. The Dow (^DJI) fell 1.79%, or 472.17 points, with all 30 components in the red. The Nasdaq (^IXIC) declined 1.96%, or 159.53 points.
Equity declines steepened Tuesday even after China’s trade negotiators signaled a willingness to continue discussions, despite new tariff threats from President Donald Trump. Beijing confirmed that a delegation of Chinese trade negotiators, led by Vice Premier Liu He, will still come to Washington, D.C. on Wednesday.
Investors had been concerned that this week’s talks would be canceled following Trump’s unexpected announcement Sunday to ratchet up tariffs on Chinese-made goods by the end of this week. The announcement blindsided markets, which had been lulled into believing the two sides were closing in on a deal after members of the Trump administration repeatedly touted the progress of the talks.
Under Trump’s proposed escalation, the tranche of $200 billion worth of imports currently taxed at 10% would be taxed at new rate of 25%, and another $325 billion in Chinese goods would also be subject to a 25% levy. Investors this week have been scrambling to assess the likelihood that the administration will make good on its threat to increase tariffs, and if so, for how long.
A long-term tariff increase would hold major implications for American businesses with significant parts of their supply chains, consumer bases and other business dealings in China, leaving investors scrambling to discount the potential impacts to companies’ bottom lines.
“With optimism pushing the equity market close to our bull case, negative surprises like a potential re-escalation of U.S.-China trade tensions can have greater negative price impact than fundamentals might dictate as changes to sentiment and the fundamental outlook are reflected in the price,” Michael Wilson of Morgan Stanley wrote in a note.
“We continue to believe that the U.S.-China relationship is impaired, the result of which is higher costs for U.S. companies and higher prices for U.S. consumers,” he said. “The latest headlines are a reminder to this effect that should weigh on sentiment as that risk is repriced, even if a deal is reached by the end of the week,” he added.
On Monday, the Dow was able to recover losses of as much as 471 points and end just narrowly in the red. To some analysts, Monday’s bounce off the lows of the session despite the negative headlines reflects an underlying resilience in U.S. stocks this year, with any pullbacks potentially creating a buying opportunity.
“The rebound from the initial lows on Monday points to the strong bullish undercurrents in this market – plenty of investors missed the surge, and will be looking to buy on weakness regardless of how trade talks go.” Chris Beauchamp, chief market analyst at IG Group, wrote in an email.
STOCKS
Anadarko Petroleum (APC) announced late Monday that its board has deemed a revised takeover bid from Occidental (OXY) “a superior proposal” to an offer from Chevron (CVX). Occidental’s buyout offer would total $38 billion, or $76 per share, in a cash-and-stock deal that had been restructured Sunday to boost the cash portion of the transaction. Occidental also offered to cover the $1 billion breakup fee for rejecting Chevron’s offer, which had totaled $33 billion and which Anadarko had agreed to accept last month. Chevron now has until May 10 to make a counter-offer.
Anheuser-Busch InBev (BUD) missed Wall Street’s bottom-line expectations for the first-quarter, with underlying earnings per share of 79 cents missing expectations by 11 cents. However, organic revenue growth of 5.9% topped expectations for 5.4% growth. Key U.S. segment revenue grew 1.6% in the first quarter, while Brazil sales surged nearly 17%. The maker of Budweiser and Michelob-brand beverages said it is exploring a potential minority stake listing of its Asia Pacific business on the Hong Kong Stock Exchange.
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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