Dow Falls as U.S. Trade Deficit Rises in December

The Dow Jones Industrial Average fell as much as 150 points on Wednesday as investors digested news that the trade deficit went 12.8 percent higher in December.

The month of December saw a $79.5 million goods deficit compared to the $70.5 billion figure in November. The rise in the deficit came as exports declined $4 billion to $135.7 billion, while imports increased by $5 billion to $215.2 billion.

The rise in the deficit comes as U.S. President Donald Trump is in the middle of trade negotiation with China. Trump has expressed his flexibility with moving the March 1 trade deadline to get a deal done, but the markets will still be news-sensitive in the meantime until a permanent trade deal materializes.

“If his goal was to make it as boring as possible so as to not disturb markets, he succeeded,” said Ed Yardeni, president and chief investment strategist at Yardeni Research. “That’s a compliment because Powell’s previous off-the-cuff style caused a lot of market havoc. Powell has learned during his short tenure as Fed chairman that consistent messaging is key.”

Fed Ready to Respond

Federal Reserve Chairman Jerome Powell told a Senate committee on Tuesday that the economy is on solid footing, but potential dangers are looming, such as the year-end volatility experienced in 2018. Powell, however, assured that the central bank will respond accordingly should such dangers present themselves.

“While we view current economic conditions as healthy and the economic outlook as favorable, over the past few months we have seen some crosscurrents and conflicting signals,” Powell said in his prepared remarks to the Senate Committee on Banking, Housing and Urban Affairs. “Financial markets became more volatile toward year-end, and financial conditions are now less supportive of growth than they were earlier last year.”

In the minutes from a Jan. 29-30 policy meeting released by the Fed last week, it was close to unanimous that a reduction in assets would come prior to the end of 2019. The markets were keen on the central bank’s holdings of $3.8 trillion in bonds, which it has steadily been reducing since October 2017.