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Dow snaps 4-day win streak after US unveils new China tariffs

CNBC logo CNBC 7/11/2018 Fred Imbert and Alexandra Gibbs


Stocks ended lower Wednesday as a trade war between the U.S. and other major economies intensified, with the Trump administration unveiling new tariffs on Chinese goods.

The Dow fell 219 points, with Caterpillar, DowDuPont and Chevron as the biggest decliners. The S&P 500 dropped 0.7 percent as energy, materials and industrials dropped. The Nasdaq declined 0.55 percent.

President Donald Trump's administration published late Tuesday a list of 10 percent duties on $200 billion worth of Chinese goods. The tariffs won’t come into effect immediately, but rather face a review process, with hearings taking place in mid-to-late August.

"At this point I'm hoping for more science in searching for a deal and less art," said Peter Boockvar, chief investment officer at Bleakley Financial Group. "China seems to have no interest in bending . . . and they will retaliate."

The announcement came just days after both nations imposed $34 billion worth of tariffs on each other.

Shares of Boeing and Caterpillar, two companies with high overseas revenue exposure, fell sharply. Chipmakers also pulled back as Nvidia, Intel and Advanced Micro Devices all dropped.

“Despite trade headlines, S&P 500 companies should deliver robust earnings on above-trend revenue growth and sharply higher margins,” said Dubravko Lakos-Bujas, head of U.S. equity strategy at J.P. Morgan, in a note Wednesday.

“While weaker overseas growth, stronger USD, and trade risks warrant some caution, consensus is likely too conservative considering rising disposable income (i.e., tax savings and expanding labor market) and lower household expenses (e.g., declining cost of goods/services including utilities),” Lakos-Bujas said. “Also, sales growth should benefit from expanding labor market, rising business investment, expanding government spending, and higher oil prices.”

Corporate earnings are expected to have risen 20 percent in the second quarter, according to FactSet. The earnings season got under way this week with PepsiCo reporting better-than-expected earnings on Tuesday. J.P. Morgan Chase, Citigroup and Wells Fargo are all scheduled to report later this week.

"The sharp market reaction to last night’s announcement by the Trump administration ... shows how sensitive markets remain to any tariff news," said Jeffrey Kleintop, chief global investment strategist at Charles Schwab. Kleintop added that second-quarter results could "offer some insight into whether tariffs are having any actual impact on 'hard' data rather than in sentiment reflected in surveys and markets. So far, we haven’t seen any material impact."

Global markets also fell on the new tariffs announcement. In Europe, the Stoxx 600 index slid more than 1 percent, while the Shanghai Composite dropped 1.8 percent. Treasury yields slipped — pushing prices higher — with the benchmark 10-year yield trading at 2.85 percent.

Trump is currently in Brussels attending a two-day NATO summit. During the first leg of his European trip, the U.S. incumbent has already made headlines by stating that “Germany is totally controlled by Russia,” describing how a number of “inappropriate” oil and gas deals had given Moscow too much influence over Berlin.

Shares of drug makers also fell after Pfizer said it will postpone price increases after a conversation with the president. Pfizer fell 0.4 percent before the bell, while Biogen dropped 1.4 percent. Merck also declined 0.5 percent.


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