Stocks fall again on trade war, rate worries
U.S. stock indexes fell Friday after President Donald Trump said he may intensify his trade battle with China. A strong jobs report also pushed investors to gird for higher interest rates.
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The S&P 500 bounced between modest gains and losses in an up-and-down day, but its most decisive move was downward after Trump said he's ready to impose tariffs on essentially every good that's imported from China. That helped push the S&P 500 to its fourth straight loss.
The S&P 500 lost 6.37 points, or 0.2 percent, to 2,871.68 and closed out just its second down week in the last 10. The Dow Jones industrial average lost 79.33, or 0.3 percent, to 25,916.54, and the Nasdaq composite fell 20.18, or 0.3 percent, to 7,902.54.
Earlier in the day, the government's monthly jobs report showed that hiring and workers' wage gains were healthier than expected in August. It's the latest evidence that the U.S. economy continues to power ahead, and it clears the way for the Federal Reserve to raise short-term interest rates at its meeting later this month and beyond. Treasury yields jumped in response.
With the economy so strong and corporate profits so high, stock prices would likely be even higher than they are today if not for investors' worries about global trade, said David Joy, chief market strategist at Ameriprise Financial.
The United States has already imposed tariffs on $50 billion in Chinese imports, with Beijing quickly following suit, and investors worry about how high the total will rise. The concern is that escalating tariffs will drag down corporate profits and economic growth.
Trump told reporters Friday that "to a certain extent, it's going to be up to China." He also said that he's prepared to impose tariffs on an additional $267 billion of Chinese imports, which would be on top of tariffs already being considered on $200 billion of Chinese goods. The S&P 500 quickly fell about 0.3 percent after Trump made his comments.
"The underlying fundamentals of the economy are still quite healthy, but the longer this goes, the more destructive it's going to be for supply chains," said Joy of Ameriprise Financial.
Further evidence about those fundamentals came from Fridays' jobs report, which showed employers hired more workers last month than economists expected, and the unemployment rate remained near an 18-year low. That helped push up the average hourly wage by 2.9 percent from a year earlier, the fastest growth in eight years.
If wage gains keep accelerating, it could feed into higher inflation throughout the economy. That in turn could push the Federal Reserve to get more aggressive about raising rates, something it has pledged to do slowly and steadily.
Higher interest rates can hurt stock prices because they make bonds look more attractive. The market went through a similar scenario in February, when the monthly jobs report showed a surprisingly big increase in wages. But investors have recently been preparing themselves for a total of four rate increases for 2018 following comments from the Fed.
"What everyone's trying to figure out is at what point do you get the intersection of higher wages pushing into inflation and the Fed starting to get a little more aggressive," said Joy. "We're not there yet, but this takes us one step closer to that, and historically, that's what brings expansions and bull markets to an end."
The yield on the 10-year Treasury jumped to 2.93 percent to from 2.87 percent late Thursday, and the two-year yield rose to 2.69 percent from 2.62 percent.
When bonds are offering higher yields, it can pull buyers away from stocks that pay big dividends. Utility stocks and real-estate investment trusts, which are among the market's highest dividend payers, had some of the day's steepest losses. They each lost 1.2 percent, tied for the largest loss among the 11 sectors that make up the S&P 500.
Tesla also struggled. Its stock sank after its chief accounting officer resigned just a month into the job. Dave Morton said he has no disagreements with Tesla's leadership about its financial reporting, but he was not expecting so much public attention and such a fast pace at the company when he joined on Aug. 6.
Tesla CEO Elon Musk also appeared on a podcast overnight in which he inhales from what the host says is a joint containing marijuana and tobacco. Shares sank $17.71, or 6.3 percent, to $263.24.
On the opposite end was Broadcom, which jumped to the biggest gain in the S&P 500 after reporting stronger-than-expected profit for the latest quarter. It rose $16.61, or 7.7 percent, to $232.58.
Broadcom and other technology stocks have been riding fast profit growth to big stock-price gains, and the group has led the market for much of the last five years. That leadership faltered a bit this past week, though, amid worries about increased scrutiny from Capitol Hill.
In markets abroad, Japan's Nikkei 225 index lost 0.8 percent, the Kospi in South Korea dropped 0.3 percent and Hong Kong's Hang Seng was virtually unchanged. In Europe, France's CAC 40 rose 0.2 percent, and Germany's DAX was virtually flat. The FTSE 100 in London fell 0.6 percent.
The dollar rose to 111.06 Japanese yen from 110.83 yen late Thursday. The euro fell to $1.1566 from $1.1625, and the British pound fell to $1.2924 from $1.2933.
Benchmark U.S. crude lost 2 cents to settle at $67.75 per barrel. Brent crude, the international standard, rose 33 cents to $76.83 a barrel.
Natural gas inched up by a fraction of a cent and settled at $2.78 per 1,000 cubic feet. Heating oil rose a penny to $2.22 per gallon, and wholesale gasoline rose 2 cents to $1.97 per gallon.
Gold slipped $3.90 to $1,200.40 per ounce, silver lost 1 cent to $14.17 per ounce and copper fell a penny to $2.62 per pound.
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