US stocks fell Tuesday as hopes of US and China reaching a deal to end their trade war seemed to fade. Tensions between the two leading world economies appeared to rise following several actions by the Trump administration that could further anger China.
The Dow Jones Industrial Average shed 313.98 points to close the day at 26,164.04 on Tuesday. The S&P 500 dropped 45.73 points and finished the day at 2,893.06. The Nasdaq Composite shed 132.52 points and ended the day at 7,823.78.
The indexes were weighed down by falling stocks of US companies with big China exposure. Shares of Qualcomm, which generates close to 70% of its revenue from China, fell 4.57% on Tuesday. Broadcom shares dropped 2.08% on Tuesday; the company derives 54% of its revenue from China. Intel Corporation and Apple stocks fell 1.77% and 1.17%, respectively. Intel looks to China for 40% of its revenue, while Apple derives more than 20% of its revenue from China.
Stocks of Chinese companies listed in the US also fell. JD.com and Alibaba stocks tumbled nearly 4.0% on Tuesday. iQiyi, the so-called Netflix of China, saw its stock drop more than 3.0%. Baidu stock fell 1.91%.
Several actions by the Trump administration spooked investors, sparking the widespread selloff in stocks.
US blacklists Chinese companies and targets Chinese officials with visa restrictions
On Tuesday, the Trump administration said it would hit Chinese officials linked to the crackdown on Muslim minorities in China’s Xinjiang region with visa restrictions.
On Monday, the administration placed more than a dozen Chinese companies on an export blacklist, which effectively restricts their access to American technologies. The administration blacklisted the Chinese companies because it believes they played a role in the abuse of the Xinjiang Muslim minorities. This is the same Muslim group that Apple said was targeted in an iPhone hack. In May, the administration placed Huawei on a trade blacklist. Consequently, Google, Facebook, and other American companies moved to suspend some business activities with Huawei.
China protested Huawei’s blacklisting and threatened to retaliate. Huawei recently released its Mate 30 flagship smartphone, without Google apps, which many believe diminishes the appeal of that product.
US and China officials meet to talk trade war resolution
The blacklisting of Chinese companies and visa restrictions targeting Chinese officials ratcheted up tensions between the US and China as the two countries prepare to resume trade talks this week. Chinese officials are expected in Washington for talks that seek to find a resolution to the long-standing trade dispute between the world’s two largest economies. The talks are expected to begin on Thursday (October 10).
Stocks fell Tuesday as investors appeared to worry that the Trump administration’s actions would reduce the chances of the US and China reaching a significant trade deal. Both the US and China have imposed import tariffs on each other’s goods. As a result, importers are struggling with higher costs, some of which they pass down to consumers.
Breakthrough in trade talks could lift stocks this week
A deal in the US-China trade war talks beginning Thursday in Washington could spark a stock rebound. And the rebound could be huge considering how low stocks have plunged as the trade disputed escalated. But a lack of a deal could put further downward pressure on stocks.
Investors focused on corporate earnings
In addition to the US-China trade war negotiations in Washington, investors will also focus on corporate earnings to gauge what the future might hold. Corporate earnings reports have begun streaming in this week. Netflix is one of the major technology companies with their earnings report coming soon. Netflix will release its third-quarter earnings report next Wednesday (October 16). There is also growing expectations that the Fed will lower interest rates again this month (October), and that too could lift stocks.