U.S. markets and stock ETFs continued to retreat after President Donald Trump showed willingness to push back a trade deal until the next election and further added to the uncertainty by threatening new tariffs on other countries.
On Tuesday, the SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) fell 1.0% while the SPDR S&P 500 ETF (NYSEArca: SPY) dropped 0.7%.
Markets reeled after Trump stated there was “no deadline” for reaching a trade accord with China, adding that he liked “the idea of waiting until after the election” to finalize a deal, the Wall Street Journal reports.
Commerce Secretary Wilbur Ross also confirmed that new tariffs on Chinese imports would go into effect on Dec. 15 as planned, Reuters reports.
The sudden about-face surprised investors, whom expected the U.S. and China to reach a “phase-one” trade deal this month before the scheduled mid-December tariff hikes. The markets have been rallying in recent weeks on hopes that further tariff hikes were being shelved and the two sides were working to de-escalate tensions.
Analysts now warn that a protracted trade fight will further diminish profit margins after a year of weakening corporate profits from manufacturers, tech and other companies due to increased trade barriers.
“It’s extremely difficult to base any investment thesis around trade, given how challenging the protagonists are,” Colin Reedie, co-head of global fixed income at Legal & General Investment Management, told the WSJ. “It’s been a fairly bullish risk environment, and markets are squeezing higher toward the end of the year, so they are a little bit more vulnerable to bad news.”
Further adding to the uncertainty, France threatened retaliation over potential new U.S. duties on French products, which were implemented as a retaliation against a proposed French “digital tax”.
“We’ve seen this happen numerous times, where there’s a trade disappointment and there’s a stock market sell-off,” Bucky Hellwig, senior vice president at BB&T Wealth Management, told Reuters. “There’s disappointment that ‘phase 1’ (of a U.S.-China deal) has been pushed back.”
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