Trump said that he was considering another $100 billion in tariffs on Chinese goods. China said that it would respond to any such action quite resolutely. Investors were worried by these developments.
There were also concerns in the afternoon after the Federal Reserve chair Jerome Powell made a speech in which he advocated a patient approach to raising interest rates.
Statistics for the main indices
The Dow Jones Industrial Average (DJIA) fell a total of 572.46 points at the close to end at 23,392.76. This was down 2.3 percent. For the week it declined but just 0.7 percent. All thirty blue-chip companies declined at the close.
The S & P index (SPX) fell 58.37 points to 2,604.47. All main sectors of the index were negative. The drop was 2.2 percent. 95 percent of all the stocks in the index closed lower. Over the week, the index lost 1.4 percent.
Finally the Nasdaq Composite Index (COMP) lost 161.44 points to close at 6,915.11. The drop on the day was 2.28 percent and on the week 2.1 percent.
Why are markets declining?
Investors are worried that a trade war between the US and China will have a negative impact on the growth of both the domestic and global economies.
After markets closed on Thursday the White House announced that Trump had asked the US Trade Representative to consider an extra $100 billion in Chinese good to face tariffs and to identify the items to target.
The Chinese responded saying: “The Chinese side will follow suit to the end, not hesitate to pay any price, resolutely counterattack and take new comprehensive measures in response”. China said it did not want a trade war but was not afraid to fight one.
Perhaps Trump is simply trying to exert pressure on the Chinese to better trading conditions for U.S. exports. Larry Kudlow National Economic Council Director said on Bloomberg TV that the administration was only considering additional “tariff pressures” and he hoped for negotiations in the next couple of months.
As mentioned, the afternoon drop was after Powell’s remarks about the economy and that the Federal Reserve would continue its gradual raising of interest rates. He also said that it was too soon to predict how a trade battle could effect the economy.
Chad Morganlander, a portfolio manager at Washington Crossing Advisors, said: “What Powell is signaling to market participants is that the Fed is not swayed or rattled by equity market volatility at this point. That’s the reason for the additional selling pressure. The Fed has the intestinal fortitude to wait until it creeps into credit conditions and causes financial stress.”
A final factor in the market decline was a job report that was weaker than expected and which showed that wage growth was also slow. The US economy added only 103,000 jobs last month, the smallest increase since last fall. This was also well below the forecast of economists who expected 170,000 new jobs. The labor market however is the tightest in two decades.
Toronto stock market also declines
The Toronto Stock Exchange’s S&P/TSX also closed down but not as sharply as in the US. The index was down 148.64 points to close at 15,207.41. This was a drop of 0.97 percent for the day with a drop of 1.0 percent for the whole week. The decline was broadly based with energy and financial shares in the lead.
