10% Tariffs Push Stocks Lower

Tariffs Push Stocks Lower

The stock market sold off sharply on Wednesday because of President Trump’s proposal of a 10% tariff on $200 billion worth of Chinese exports. It’s important to recognize that this equates to a $20 billion tariff, not $200 billion. Sometimes articles falsely claim the tariff is the amount of goods being taxed. You can tell the tariffs caused stocks to decline because the Dow fell 0.88% after it had outperformed the Russell 2000 on Monday and Tuesday. The S&P 500 and the Russell 200 both fell 0.71%. You can also tell it was a selloff based on tariffs because the industrials fell 1.62%. Every sector was down except utilities as energy was the worst, falling 2.15%, and utilities were the best as they increased 0.87%.

This was also a selloff because the market was overbought. That overbought characterization didn’t show up on the 14 day RSI, but if you looked at shorter duration indicators, it was overbought. After this selloff, the CNN Fear and Greed index was at 40 which signals fear. If it wasn’t for the tariff announcement, we’d be talking about the record high being broken by the end of the month since earnings have been great.

It seems as if a tariff on all $500 billion worth of Chinese goods exported to America is an inevitable announcement unless China finally gives in to President Trump’s demands which include respecting intellectual property and lowering the trade deficit with America. The day that tariff is announced there will probably be one of the sharpest tariff related declines thus far. The good news is that announcement probably won’t come until after the review for this latest tariff starts on August 20th. The bad news is another negative catalyst could be coming because China will respond to these new tariffs shortly. The Shanghai index was down 1.76%. I think it’s good to see it decline because it means China is closer to giving in to America’s demands.

Treasury Yield Flattens Further

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