Stocks opened lower Wednesday, as tensions between the U.S. and China over Hong Kong protests weighed on efforts to complete a trade deal, and after a weak retail sales report offset better-than-expected corporate earnings reports.
What are major indexes doing?
The Dow Jones Industrial Average DJIA, -0.03% was about 58 points, 0.2%, lower, in mid-morning trading, at 26,966, while the S&P 500 SPX, +0.01% was off about 6 points, 0.2% lower, to start trading at 2,989.70. The Nasdaq COMP, -0.08% was down 25 points, 0.3%, lower, at 8,123.
On Tuesday, the Dow rose 237.44 points, or 0.9%, to end at 27,024.80, while the S&P 500 advanced 29.53 points, or 1%, to close at 2,995.68, leaving it 1% away from its all-time closing high of 3,025.86 set on July 26. The Nasdaq Composite finished at 8,148.71 after gaining 100.06 points, or 1.2%.
What’s driving the market?
China threatened to retaliate over a series of bills backing pro-democracy protesters in Hong Kong that unanimously passed the House of Representatives late Tuesday. A spokesman for China’s foreign ministry said that if the legislation were to become law “it wouldn’t only harm China’s interest in China-U. S. relations, but would also seriously damage U.S. interests.”
“We think it’s possible this bill will push China into a public show of defiance against U.S. ‘interference,’” which could mean a crackdown on Hong Kong protesters, said Jasper Lawler, head of research at London Capital Group, in a note.
“Under that scenario, markets would be relieved if China’s retaliation kept the trade pact intact. However, higher political uncertainty in Hong Kong would be a sizable downside risk,” Lawler said.
See: China vows ‘strong countermeasures’ in wake of U.S. bill supporting Hong Kong protesters
The Wall Street Journal reported there are questions about the amount of U.S. agricultural products China will actually buy as part of the tentative trade deal announced last week.
In economic data, a report on U.S. September retail sales missed expectations, falling for the first time in seven months. Sales fell 0.3%, while economists surveyed by MarketWatch, had looked for a 0.3% increase. Shortly after that release, Fed Funds Futures showed a 90% likelihood that the central bank would cut interest rates at its October meeting, up sharply from 78% on Tuesday.
“Today’s retail sales miss pretty much seals a 25-basis point rate cut at the end of the month,” said Edward Moya, OANDA senior market analyst.
“This is a major release and when we take a look at U.S. data leading up to the Fed meeting, there’s not a whole lot more that’s going to move them,” Moya told MarketWatch. His own forecast is for three-four more rate cuts and an expansion of Fed bond-buying over the next 12 months or so.
That’s in large part because investors have mostly decided there’s no broad China trade deal coming soon, Moya said. At best, there may be some temporary measures and a “de-escalation” of the tariffs, but if the Fed doesn’t deliver rate cuts, there’s likely to be some pushback from markets, he thinks.
The weak U.S. retail sales data added to concerns over the potential for a recession while the IMF warned that the U.S. stock market was overvalued as belief in a Federal Reserve rescue for the economy is allowing investors to ignore tensions over international trade policy.
Separately, a reading on U.S. home-builder confidence, often seen as a precursor to stronger construction activity, hit a 20-month high.
Which stocks are in focus?
Shares of Bank of America Corp. BAC, +2.30% were higher after the company reported third-quarter profit that topped Wall Street expectations.
Other earnings expected ahead of the bell Wednesday include Abbott Laboratories ABT, +1.46%. After the close, results are expected from streaming-video company Netflix Inc. NFLX, +0.17%, computing giant International Business Machines Corp. IBM, -0.73%, metals maker Alcoa Corp. AA, +2.36% and railroad CSX Corp. CSX, -0.27%.
Shares of United Airlines Holdings Inc. UAL, +2.99% were higher after third-quarter profit reported after Tuesday’s close topped expectations and the company raised guidance for the year.
Shares of MGM Resorts International MGM, -1.31% may be in focus after it announced late Tuesday that it would sell its Circus Circus casino resort in Las Vegas and a huge interest in its Bellagio resort.
Three major drug distributors are in talks to pay $18 billion to settle litigation brought by state and local governments blaming them for fueling the opioid crisis, The Wall Street Journal reported, potentially offering a resolution to lawsuits that have shaken the pharmaceutical industry.
That report said that three distributors — McKesson Corp. MCK, +6.85%, AmerisourceBergen Corp. ABC, +5.42%, and Cardinal Health Inc. CAH, +4.74% would collectively pay $18 billion over 18 years according to the deal currently on the table. Johnson & Johnson JNJ, +2.42% is also involved in the talks to contribute additional funds, the report said.
How are other markets trading?
In commodities, crude oil prices CLX19, +1.02% were fractionally higher, trading at $53 a barrel on the New York Mercantile Exchange. Gold futures GCZ19, +0.38% ticked up $6.70, or 0.4%, to $1,488.60. The dollar DXY, -0.11% was 0.16% lower than a basket of other currencies. The U.S. 10-year Treasury note was one basis point lower to 1.76.