Stock Market

Dow Jones Ends 400 Points Lower As Visit To Taiwan Puts U.S. and China Tensions Back

Dow Jones Ends 400 Points Lower As Visit To Taiwan Puts U.S. and China Tensions Back

Dow Jones Ends 400 Points Lower As Visit To Taiwan Puts U.S. and China Tensions Back

Dow Jones Ends 400 Points Lower As Visit To Taiwan Puts U.S. and China Tensions Back

As investors evaluated hawkish remarks from two top Federal Reserve officials and dissected the ramifications of House Speaker Nancy Pelosi’s historic trip to Taiwan, U.S. stocks ended lower on Tuesday for the second straight day.

SUMMARY

  • The Dow Jones Industrial Average DJIA, -1.23% finished 402.23 points, or 1.2%, lower at 32,396.17.
  • The S&P 500 SPX, -0.67% fell 27.44 points, or 0.7%, to close at 4,091.19
  • The Nasdaq Composite COMP, -0.16% shed 20.22 points, or 2%, finishing at 12,348.76.
  • The Russell 2000 RUT, -0.05% gave up less than 0.1%, closing at 1,882.45.

Stocks ended a seesaw session slightly lower on Monday, with the Dow falling less than 50 points, or 0.1%, while the S&P 500 lost 0.3% and the Nasdaq Composite ticked down 0.2%.

What Moved The Stocks

After Pelosi’s jet defied China’s orders and safely touched down in Taipei Tuesday night local time, or late morning in New York, U.S. equities fell into the closing bell on that day.

Although Tuesday’s session “wasn’t a horrible performance overall,” according to Tom Essaye, founder of Sevens Report Research, “not bad” isn’t going to be good enough to propel the S&P 500 to 4,200. There was no real good news on Tuesday, which is what we need. It wasn’t enough to avoid sparking a conflict between the US and China, Essaye told MarketWatch over the phone.

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As the highest-ranking elected American official to visit the island in 25 years, Pelosi made history. She is on a visit abroad, and as part of that travel, she will be speaking in Singapore, Malaysia, South Korea, and Japan about a range of subjects, including trade, COVID-19, climate change, and security. It’s important to note that numerous Republicans from Congress traveled to Taiwan last summer.

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Beijing declared intentions to conduct military exercises and missile testing in a region surrounding Taiwan after criticizing the trip. In the meantime, Taiwan’s authorities asserted that Tuesday saw the entry of over two dozen Chinese jets into its airspace as well as a hack against the president’s office website.

Dow Jones Ends 400 Points Lower As Visit To Taiwan Puts U.S. and China Tensions Back

The tensions sparked initial demand for safe-haven assets, with gold prices rallying Tuesday. The 10-year Treasury note TMUBMUSD10Y, 2.711% fell in early trade, but bounced back to rise around 13.5 basis points to 2.74%, its highest level in a week. Yields and debt prices move in opposite directions.

But the main action in Treasuries was seen at the short end of the curve on Tuesday, where the two-year yield climbed 16.8 basis points to 3.077%, according to Dow Jones Market Data, while the three-month Treasury bill yield increased by 15 basis points to 2.46%.

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Fed speakers were also in focus Tuesday. San Francisco Fed President Mary Daly said the Fed is “nowhere near” finished with its fight against inflation, while Chicago Fed President Charles Evans said he hoped the Fed could raise rates at a slower pace later in the year, but that it would ultimately depend on the data. Neither Daly nor Evans has a vote on the Fed’s rate-setting committee this year.

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The hawkish tone used by the two Fed speakers was in line with comments made recently by Minneapolis Fed President Neel Kashkari and other Fed officials, according to Neil Dutta, head of economics at Renaissance Macro Research. That may not be good for stocks even though it helps to explain the spike in short-term interest rates, which are the most susceptible to predictions over the trajectory of Fed rate hikes.

Dow Jones Ends 400 Points Lower As Visit To Taiwan Puts U.S. and China Tensions Back

“This does not strike us as the Fed being close to pivoting,” he wrote. “The squawking has the intended result with two-year yields up 18bps now. Perhaps the Fed rhetoric caps the upside to equity multiples.”

According to a report on the U.S. labor market, job opportunities decreased from 11.3 million in May to 10.7 million in June. After reaching a record high of 11.9 million in the early spring, openings had fallen three months in a row. The Labor Department said on Tuesday that the number of employees who left their jobs in June barely marginally decreased to 4.23 million.

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The highlight of this week’s economic data calendar will be delivered to investors on Friday with a report on the labor market’s performance in July. According to Essaye, it appears that investors are holding out hope that the impending economic statistics would indicate that both the tight labor market and the high inflation will begin to ease.


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