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Stocks close near lows as U.S. blacklists more Chinese firms
08-Oct-19 16:25 ET
Dow -313.98 at 26164.04, Nasdaq -132.52 at 7823.78, S&P -45.73 at 2893.10

https://www.briefing.com/stock-market-update

[BRIEFING.COM] The S&P 500 fell 1.6% on Tuesday following a series of trade developments that exacerbated concerns about upcoming trade talks and global growth prospects. The Dow Jones Industrial Average (-1.2%), Nasdaq Composite (-1.7%), and Russell 2000 (-1.7%) also posted sizable losses to close near session lows.

The U.S. Commerce Department placed 28 more Chinese firms on its Entity List for their role in fostering violations of human rights against a Muslim minority in China. Beijing's foreign ministry spokesman denied the allegations and warned about possible retaliation, with a report suggesting China could even leave this week's discussions one day early.

Selling pressure appeared to level off after China's Global Times reported that China remains sincere in reaching a comprehensive deal and intends on proceeding "calmly." Stocks then cut losses after Fed Chair Powell said the Fed plans on expanding its balance sheet, but quickly faded into the close on news that the U.S. will impose visa bans on Chinese officials linked to the human rights abuses.

All 11 S&P 500 sectors finished lower in a risk-off session. Nine sectors lost at least 1.0%, including a 2.0% drop in the financials sector. The real estate sector (-0.5%) declined the least.

A disappointing outcome in trade talks was likely being priced in but also the likelihood that the tariff rate on $250 billion of Chinese imports will increase to 30% from 25% on Oct. 15, as planned. In other words, the trade uncertainty continued to dampen the growth outlook for the economy and corporate earnings.

Many of the China-sensitive semiconductor stocks, including Ambarella (AMBA 51.79, -5.43, -9.5%), underperformed as many of these companies derive a sizable portion of their revenue from China. The Philadelphia Semiconductor Index dropped 3.1% on Tuesday.

U.S. Treasuries ended a volatile session on a higher note amid growth concerns and an unexpected decline in producer prices for September. The 2-yr yield declined four basis points to 1.42%, and the 10-yr yield declined two basis points to 1.54%. The U.S. Dollar Index increased 0.2% to 99.13. WTI crude declined 0.3%, or $0.13, to $52.66/bbl.

Reviewing Tuesday's economic data, which included the Producer Price Index for September and the NFIB Small Business Optimism Index for September:

The Producer Price Index for final demand declined 0.3% m/m in September (Briefing.com consensus +0.1%), as did the index for final demand less food and energy (Briefing.com consensus +0.2%).
The key takeaway from the report is that the price declines were broad based, and not just energy-related, which is indicative of an environment characterized by weaker demand. The Producer Price Index for September wasn't good news, unless it's spun as a "bad news is good news" kind of thing because it seemingly strengthened the case for a Fed rate cut later this month.
The NFIB Small Business Optimism Index for September declined to 101.8 from 103.1.

Looking ahead, investors will receive the Minutes from the FOMC's September meeting, the JOLTS - Job Openings report for August, the Wholesale Inventories report for August, and the weekly MBA Mortgage Applications Index on Wednesday.

Nasdaq Composite +17.9% YTD
S&P 500 +15.1% YTD
Dow Jones Industrial Average +12.2% YTD
Russell 2000 +9.2% YTD

Market Snapshot
Dow 26164.04 -313.98 (-1.19%)
Nasdaq 7823.78 -132.52 (-1.67%)
SP 500 2893.10 -45.73 (-1.56%)
10-yr Note +2/32 1.539
NYSE Adv 686 Dec 1926 Vol 805.7 mln
Nasdaq Adv 666 Dec 2420 Vol 1.9 bln

Industry Watch
Strong: Real Estate
Weak: Financials, Health Care, Information Technology

Moving the Market

-- Stocks decline in broad-based retreat on exacerbated concerns about trade and growth

-- U.S. placed 28 Chinese firms on its trade blacklist for their part in fostering human rights abuses against a Muslim minority in China; will impose some visa restrictions

-- China denies violations and warns it could retaliate; still plans on proceeding calmly and is reportedly sincere in reaching a comprehensive deal

-- Fed Chair Powell said the Fed intends on expanding its balance sheet but says it should not be mistaken as "QE"

-- Weakness in the China-sensitive semiconductor stocks