Here we go again.
The Dow shed 250 points at the open on Friday after President Trump threatened to escalate a confrontation with China over trade. It quickly recovered some of that ground and was down about 150 in early trading.
Trump said he was considering tariffs on $100 billion more in Chinese exports, which would triple what the United States is already planning.
The market is fragile as China and the United States exchange threats on tariffs.
Wary investors are holding out hope that the two sides will reach a deal before the trade barriers go into effect. White House officials, including top economic adviser Larry Kudlow, have sought to ease Wall Street’s fears of a trade war.
Sam Stovall, chief investment strategist at CFRA Research, said investors were reacting to the administration’s “good cop, bad cop kind of negotiating strategy.”
“The optimistic case is that the higher stakes will encourage the United States and China to push harder for an agreement so that the tariffs can be avoided or at least watered down,” Capital Economics’ Julian Evans-Pritchard wrote in a research note Friday.
Earlier this week, the Trump administration announced plans for tariffs on $50 billion worth of Chinese goods in retaliation for China’s alleged theft of US intellectual property. Beijing fired back hours later by threatening tariffs on $50 billion worth of US goods, including cars, planes and soybeans.
The moves follow US tariffs that were imposed earlier this year on Chinese steel and aluminum. That prompted China to target US fruits, nuts, wine and steel pipes in response.
“The ratcheting up of trade tensions clearly carries risks. The tariff threats, even if only intended as bargaining tools, will be difficult to back down from if talks fail to deliver results,” Evans-Pritchard said.
Stocks were mostly unaffected by the March jobs report, which showed that the US economy added 103,000 positions, down from a much bigger gain in February and well below what analysts were expecting.
Wages grew 2.7% in March compared with a year earlier, in line with expectations. Investors were watching that number because it’s a barometer of inflation. In February, an unexpected jump in wage growth set off inflation alarm bells and caused stocks to plunge.
The Federal Reserve is on track to raise interest rates three times this year, but the Fed could speed up its plan if inflation creeps higher.
The combination of the hiring slowdown and modest wage growth eased Wall Street’s concerns that the economy was overheating.
The yield on the 10-year US Treasury note, which has been steadily climbing as investors’ inflation expectations rise, dipped slightly to 2.79% after the jobs report.
“Investors breathed a sigh of relief,” Stovall said. “Now we only have one issue to deal with, and that’s trade.”
