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China swiped a page from the Donald Trump trade playbook Tuesday with similar results for global markets.
Asked if retaliation is forthcoming after the U.S. blacklisted eight tech companies, foreign ministry spokesman Geng Shuang told reporters: “stay tuned.” S&P 500 traders chose not to wait and the index tumbled toward one of its worst sessions since August.
The situation bears parallels to Aug. 23, when equities plunged as much as 3% as traders waited around for five hours for the president to elaborate on a threat to respond to a Chinese tariff escalation. The market hates uncertainty, manufactured or otherwise.
“It’s vague and you can’t by definition have much certainty over how it would affect a security’s price,” said Troy Gayeski, co-chief investment officer and senior portfolio manager at SkyBridge Capital. “There’s no way you can accurately price in those risks.”
Tensions between the two superpowers are up just days before a Chinese delegation is set to visit Washington to discuss trade. On Monday, the Commerce Department put a number of Chinese entities on an export blacklist that prohibits U.S. firms from doing business with them, denting hopes of a meaningful breakthrough at this week’s meetings. Anxiety heightened further after Bloomberg News reported that the Trump administration is discussing possible restrictions on portfolios into China.
The new developments underscored investors’ worries that the trade war could push the U.S. into a recession. For some, it’s already gone too far, with reversals from either side becoming increasingly more difficult as the two harden their stances.
“There has been a lot of uncertainty in the marketplace for many, many, many months, but it rose to a whole new level,” Matt Maley, equity strategist at Miller Tabak + Co., wrote in a note. “It’s one thing to have an economic war over trade or even one that involves a currency war, but it’s another one altogether if it’s a war that involves global capital flows.”
Stocks have been whipsawed this month -- out of six sessions so far in October, the S&P has already seen four days of greater-than-1% moves. The index fell below its 50-day and 100-day moving averages on Tuesday to trade at the top of the range that dictated sentiment throughout August.
Highlighting the market’s sensitivity to trade, a basket of U.S. stocks with greater exposure to China is having its biggest underperformance to the S&P in two months. Trade-war sensitive semiconductor and hardware stocks suffered some of the biggest losses on Tuesday. The Philadelphia Stock Exchange Semiconductor Index lost as much as 3.1%, the most since the Aug. 23.
“There’s the greater likelihood of downside pressure if things don’t go the way markets are hoping,” said Brian Pirri, principal at New England Investment & Retirement Group, adding that they are not “going to be happy with a small deal or some kind of negotiated settlement.”
The S&P was down 1.1% as of 12:27 p.m. in New York on Tuesday, with the Dow Jones Industrial Average and the Nasdaq Composite each falling more than 0.8%.
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