Trade, geopolitical uncertainty sends stocks lower; industrials sell off

Spartan Capital Securities LLC Participates in 8th Annual Wall Street Run & Heart Walk Sponsored by the American Heart Association
May 22, 2018
Markets rise as Beijing and Washington avert trade war
May 22, 2018

Trade, geopolitical uncertainty sends stocks lower; industrials sell off

Boeing was one of the day’s biggest drags

Getty Images

U.S. stocks closed lower Tuesday, with major indexes turning decisively negative in afternoon trading and ending near their lows of the day as uncertainty over trade policy and other geopolitical issues remained high.

Read: Meet ‘green gold’ — and the stock for betting on it

What did markets do?

The Dow Jones Industrial Average DJIA, +0.58% fell 178.88 points, or 0.7%, to 24,834.41. The S&P 500 SPX, +0.37% lost 8.57 points, or 0.3%, to 2,724.44. Among the day’s biggest decliners were industrial stocks, a sector that is heavily correlated with trade concerns. The group lost 1.3% while the materials sector lost 0.9%.

The Nasdaq Composite Index COMP, -0.22% lost 15.58 points, or 0.2%, to 7,378.46.

The small-cap benchmark Russell 2000 index RUT, +0.01%  lost 0.7% points to 1,625.25, ending a four-day rally that took it to a series of records.

Opinion: Here’s what the Russell 2000’s new high means for the S&P 500

Read: The strong dollar is a stock-market drag and poses a threat to earnings growth

What drove the market?

Trade policy continued to be a primary driver for investors, and the issue grew clouded on Tuesday. Asked if he was happy with how U.S.-China trade talks were going, President Donald Trump told reporters, “Not really,” and said negotiations “have a long way to go.”

Optimism over trade had spurred a stock rally in Monday’s session, after Treasury Secretary Steven Mnuchin said that the Trump administration would “put the trade war on hold” while working out details of a deal between the countries. Trump’s comments seemed to offset Mnuchin’s view.

Other geopolitical tensions also continued to hover in the background, with uncertainty over a historic meeting between Trump and North Korea’s dictator Kim Jong Un. Vice President Mike Pence warned in an interview late Monday that North Korea cannot “play” Trump where nuclear disarmament is concerned. On Tuesday, Trump said a planned summit with Un may happen later than currently scheduled.

Meanwhile, laying out new demands for Iran on Monday, the White House said any new nuclear deal with the U.S. would require Iran to stop enriching uranium and to pull its support for militant groups in the Middle East. The demands were met by immediate rejection from Iran.

Read: Here’s the hidden stock-market risk investors need to watch out for

What were strategists saying?

“For the moment, investors are taking a wait-and-see attitude with respect to the [trade] negotiations, especially with the other geopolitical issues weighing on the market,” said Jeff Kravetz, regional investment strategist at U.S. Bank Wealth Management.

“Issues like the future of the North Korea summit or negotiations with Iran are things that investors are very concerned about, though they’re more psychological than things that would have a major economic impact. Our view is that markets will move higher over the remainder of the year, but it will be a volatile journey to get there.”

What stocks were in focus?

Among notable decliners in the industrial space, Boeing Co. BA, -0.05%  lost 2.5% while Caterpillar IncCAT, +0.42%  ended down 1.7%. 3M Co.MMM, +0.34%  fell 1.4%. All three were among the biggest decliners on both the Dow and the S&P.

J.C. Penney Co. JCP, -0.36%  fell 6% after the company’s chief executive quit to take over leadership of Lowe’s CosLOW, -0.60% . Shares of Lowe’s fell 1.9%.

Toll Brothers Inc. TOL, -0.75%  shares slumped 9.6% after the building company posted a 10% fall in second-quarter profit on higher impairment charges, and said gross margin fell.

Kohl’s Corp. KSS, -2.08%  sank 7.4% despite better-than-expected earnings and an upbeat outlook.

Shares of Micron Technology Inc. MU, -2.86%  rallied 6.4% after the company raised its third-quarter outlook and announced a large stock-buyback program. The gain supported chip makers overall; the PHLX Semiconductor index SOX, -0.66%  rose 0.6%.

AutoZone Inc. AZO, -0.63% sank 9.5% after the company reported its first-quarter results.

TJX Companies Inc. TJX, -0.72% shares rose 3.3% after the retailer’s quarterly earnings came above estimates.

Read: GreenSky IPO: 5 things to know about the company seeking to end fintech IPO lull

U.S.-listed shares of Sony Corp. SNE, +1.26% 6758, +0.16%  fell 2.8% after the Japanese multinational conglomerate said it has agreed to buy Mubadala Investment Co.’s stake in EMI Music Publishing in a roughly $2.3 billion deal.

Read: Netflix’s new running mates: Barack and Michelle Obama

What did other markets do?

Asian markets finished mixed, while European stocks SXXP, +0.86% inched higher.

Read: ‘Greek-like crisis’ fears hang over Italy’s markets as populists ready government

The dollar was continuing to retrace gains on Tuesday, while the 10-year U.S. Treasury note yield TMUBMUSD10Y, +0.12%  was hovering around 3.07% after touching a seven-year intraday high of 3.126% on Friday.

See: Stock-market investors have fewer excuses for shunning bonds

U.S. oil futures US:CLM8 ended modestly lower.

Read: Here’s what an ‘oil shock’ would mean for the global economy

Economic preview: Rising rates, higher gas have failed to kill the economic expansion

Gold futures GCM8, +0.20% inched up 0.1% to $1,292.00 an ounce a day after settling at its lowest level of 2018. The ICE U.S. Dollar Index DXY, -0.18%DXY, -0.18% fell 0.1% to 93.530, as the pound strengthened against the buckGBPUSD, +0.2492% .

Bank of England policy maker Gertjan Vlieghe reportedly predicted up to two interest-rate increases a year, as officials testified in front of the U.K. Treasury committee.