The Dow Jones Industrial Average fell as much as 200 points on Friday amid a U.S. government shutdown that is now three weeks long and concerns over an economic slowdown in China.
The Dow is coming off the heels of a five-day winning streak on trade negotiations between the U.S. and China progressing. Domestically, however, investors worry that the government shutdown could drag on longer than anticipated.
U.S. President Donald Trump said he would miss the annual World Economic Forum at Davos this month as result of the shutdown.
Because of the Democrats intransigence on Border Security and the great importance of Safety for our Nation, I am respectfully cancelling my very important trip to Davos, Switzerland for the World Economic Forum. My warmest regards and apologies to the @WEF!
— Donald J. Trump (@realDonaldTrump) January 10, 2019
“We think a deal will be reached to reopen the government, but only after economic, financial and/or political pain is felt,” said Joseph Song, an economist at Bank of America Merrill Lynch. “Every two weeks of a shutdown trims 0.1pp from growth; additional drag is likely due to delays in spending and investment.”
In addition to Apple, who lowered its fiscal first quarter revenue guidance due to an unanticipated slowdown in China, Starbucks could be affected next.
“The recent AAPL [Apple] announcement (while potentially also product-driven) cited trade concerns/macro, and MCD [McDonald’s] acknowledged softer trends in the region at a late November event,” said Goldman Sachs analyst Karen Holthouse. “The GS macro team also expects a continued slow down in GDP, at least partially driven by consumption.”
Related: US Stocks Are in for a ‘Bumpy Ride’: Walser Wealth Management President
Bank Earnings Ahead
Fourth quarter earnings will be ramping up as the big banks, such as Bank of America, Wells Fargo and JP Morgan Chase are scheduled to report earnings next week.
“The power of the recovery rally in US and global equities has been impressive,” said Michael Shaoul, chairman and CEO of Marketfield Asset Management. “As encouraging as all of this has been to witness it does not change the fact that a sell-off of this magnitude does not happen in a vacuum.”
“The decline marks a key downward-shift in the long technology driven bull market,” Shaoul added. “There is simply no way to tell at present whether we have witnessed the completion of a brief but tumultuous sell-off.”
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