China Tensions Are Starting to Worry the Market: What Wall Street’s Saying

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Stocks reversed course Thursday on China anxiety. Stocks were up for most of the day as jobless claims indicated the recession has bottomed, but the market reaction to news on China reveals an underlying fear about geopolitical issues.

All three major U.S. indices fell, with the S&P 500 down 0.21%, after having gained almost 1% in the afternoon. The 10-Year Treasury yield still rose to 0.7%, although much of the trading action was largely risk-off. Yields rise when prices fall. 

In the morning, weekly jobless claims read 2.1 million people. That’s an ugly number historically, but relative to recent reads, which have steadily declined from 6 million at the start of lockdown, it shows the recession has bottomed, excluding another wave of coronavirus infections. 

But in the late afternoon, President Trump announced he will hold a news conference Friday on China. U.S.-China political tensions have flared up of late, which has had some impact on the market in weeks past, but positive developments have overshadowed that. The political tensions indicate the White House may not be interested in completing a trade deal with China. Now, investors are afraid the administration will announce new tariffs or sanctions on China, a clear economic negative. 

Market leadership was classically defensive. The S&P 500 Consumer Staples index rose 0.95%. The New York Stock Exchange Healthcare Index rose 1.4%. The Dow Jones Utilities Index rose 2.78%. 

Dollar Tree  (DLTR) - Get Report rose 11% on an earnings beat, highlighting the strength of discount retail and less cyclical businesses during economic stress. 

Banks, oil and consumer discretionary stocks, all of which are cyclical, fell. 

Here’s What Wall Street’s Saying: 

Chris Zaccarelli, Chief Investment Officer, Independent Advisor Alliance:

"It’s still an extremely large number, but if the number of people continuing to file for unemployment benefits is decreasing then this should be viewed as a positive for the economy as more people are going back to work as states begin the re-opening process. We think it’s likely that the economic data will be overshadowed by the news of additional regulation of big technology companies and increasing tensions in the US-China relationship.”

Mike Loewengart, Head, Investment Strategy, E*trade: 

"It’s a brutal read but keep in mind it’s a lagging indicator signaling the devastation of which we are all very much aware. GDP will continue to experience pressure in the near term, both at home and abroad. And while it’s the worst GDP read in the past decade, we’re still sitting above financial crisis levels. While jobless claims continue to mount, they’re incrementally slowing week after week which should offer some optimism. While some of the hardest hit areas, like New York and Los Angeles, continue to operate under stay-at-home orders, a lot of the country is returning to business as usual or charting a path for a cautious return to normalcy—which is good news for furloughed workers and currently unemployed populations."

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