U.S. stocks slid lower Friday, closing out a second week of losses, as investors weighed a report that the Trump administration is considering potential curbs on U.S. portfolio investments into China.
Investors also kept an eye on U.S. mixed economic data and the geopolitical implications of whistleblower complaint against President Donald Trump who is facing an impeachment inquiry in Congress.
What are major indexes doing?
The Dow Jones Industrial Average DJIA, -0.26% lost 70.87 points or 0.26%, to 26,820.25, while S&P 500 index SPX, -0.53% lost 15.83 points, or 0.53%, to trade at 2,961.79. The Nasdaq Composite Index COMP, -1.13% gave up 91.03 points, or 1.13%, at 7,939.63.
The Dow on Thursday gave up 79.59 points, or 0.3%, to end at 26,891.12, while the S&P 500 lost 7.25 points or 0.2%, to finish at 2,977.62. The Nasdaq closed at 8,030.66, down 46.72 points, or 0.6%.
For the week, the Dow shed 0.43%, the S&P 500 retreated 1.01%, while the Nasdaq lost 2.19%.
What’s driving the market?
The Trump administration has been discussing ways to curb U.S. portfolio inflows into China, according to Bloomberg News, a crackdown that could hit billions worth of investments and escalate the Sino-American trade war.
U.S. stocks retreated as investors studied the potential impact of the news, which could signal a significant ratcheting up of U.S.-China tensions ahead of planned talks in mid-October over trade issues.
“It’s going to be watch-and-see,” said Marc Pfeffer, Chief Investment Strategist at CLS Investment, adding that any plans by Trump to impinge on U.S. flows of capital into China’s market would be a “dangerous foray into a totally different venue” of the ongoing U.S.-China dispute.
But Pfeffer also cautioned that Trump officials simply might be looking for leverage against China ahead of scheduled trade negotiations, particularly at a time when he could appear weakened by the impeachment proceedings.
Check out: Emerging markets offer useful lessons for market impact of impeachment, says analyst
Shares of New York listed Chinese bellwether Alibaba Group Holdings, Inc. BABA, -5.15% lost 5.15%, while Baidu, Inc. BIDU, -3.67% gave up 3.67%. Both are considered barometers for Chinese stocks that trade in the U.S.
In early trade, stocks were up following a CNBC report that top U.S. and Chinese negotiators are set to meet Oct. 10-11 in Washington, with Chinese Vice Premier Liu He to lead the delegation from Beijing. Also, news reports said Chinese officials have talked about increased purchases of U.S. goods.
On Thursday, the weaker tone was tied in part to a news report that the Trump administration was unlikely to extend a waiver that allows U.S. companies to make sales to China telecom firm Huawei, potentially stoking trade tensions. Skeptics said they still need convincing after numerous swings between conciliation and escalation over the course of the U.S.-China trade battle stretching back to spring of last year.
The sudden twist on the trade front likely came as no surprise to investors who had taken initial optimism over the October meeting plans with a grain of salt.
“We have been here before,” said Bas van Geffen, quantitative analyst at Rabobank.
Fundamental issues, including China’s approach to intellectual property rights, remain unaddressed so far, van Geffen said in a note, adding that Trump may be reluctant to create the appearance he’s growing soft on China ahead of the 2020 elections, a risk he runs if an intermediate deal doesn’t sufficiently address fundamental U.S. concerns.
“We are not convinced that renewed trade talks will lead to the results the market may once again be hoping for, and any optimism ahead of the October meeting may be fleeting,” he said.
Investors also sifted through mixed U.S. economic data published Friday, which included disappointing estimates of consumer spending growth. The Commerce Department estimated that consumer spending rose 0.1% in August, versus expectations of a 0.3% rise, according to a MarketWatch poll of economists. Incomes rose 0.4%, also below forecasts of 0.5%, and indicating Americans saved much of their gains last month.
“Income growth was solid, but spending was disappointing, that tells me that people and companies are getting defensive and preparing for uncertain times,” Mike Loewengart, vice president of investment strategy at E-Trade told MarketWatch.
Core personal-consumption expenditure (PCE) inflation, the Federal Reserve’s preferred measure of price growth, advanced 0.1% month-over-month, while the annual rate rose from 1.7% to 1.8%, still below the Fed’s 2% goal.
Orders for durable goods rose by 0.2% in August, above the 0.7% decline expected by economists polled by MarketWatch, but excluding defense orders, they fell 0.6%. Core capital orders, an important measures of corporate capital investment, fell 0.2% in August, continuing a trend of weakness seen for much of the year.
The University of Michigan revised its index consumer sentiment upwards in September, from 92 to 93.2, though the index is trending downward broadly.
“The economic data today was skewed toward the positive side and it helped,” said Paul Zemsky, chief investment officer at Multi Asset Strategies, in an interview. “It takes some of the fear out of the market.”
In U.S. politics, a whistleblower report released on Thursday alleged that President Donald Trump attempted to coerce Ukraine to investigate Democratic rival Joe Biden, and that White House officials acted to conceal evidence of his actions. The controversy around the report prompted House Democrats this week to launch a formal impeachment inquiry.
The whistleblower report and impeachment concerns have had only a fleeting, at most, effect on markets so far, analysts said, but could become a factor if the outlook for Trump’s presidency darkens.
Two Fed speakers were on investor radars Friday. Randal Quarles, the Federal Reserve vice chairman for banking supervision, said the economy is “solid” despite trade uncertainty, at a Georgetown University event in Washington, while Philadelphia Fed President Patrick Harker said the central bank should hold firm on rates right now, in a speech in New York.
Which stocks are in focus?
On the corporate front, Wells Fargo & Co. WFC, +3.77% announced Friday that it hired Charles Scharf as chief executive, ending a six-month search for a new chief. Scharf was most recently chairman and CEO of Bank of New York Mellon Corp. BK, -4.50%.
Shares of Micron Technology Inc. MU, -11.09% ended lower after the memory-chip maker reported another large earnings decline and predicted a disappointing holiday season.
Pfizer Inc. PFE, +1.23% stock rose after the pharmaceutical giant reported favorable results in a second late-stage trial of a treatment for moderate to severe atopic dermatitis, a chronic skin disease.
How are other markets trading?
The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, -0.91% fell less than a basis points to 1.678%.
In commodities markets, oil futures declined on Friday as traders weighed conflicting reports on Iranian oil sanctions, with President Donald Trump denying claims that the U.S. offered to remove all sanctions on Tehran in exchange for talks. The price of West Texas Intermediate crude oil for November delivery CLX19, -0.48% fell 50 cents to $55.91 per barrel on the New York Mercantile Exchange.
Gold prices ended the week with a loss on Friday on the back of overall strength in the U.S. dollar, but held ground above the key $1,500-an-ounce mark. Gold for December delivery GCZ19, -0.77% fell $12.10 to $1,503.10 an ounce.
In Asia, stocks traded mixed, with the China CSI 300 000300, +0.30% rising 0.3%, Japan’s Nikkei 225 NIK, -0.77% retreating 0.7% and Hong Kong’s Hang Seng Index HSI, -0.33% falling 0.3%. European stocks were mostly higher, as measured by the Stoxx Europe 600 SXXP, +0.47%.