FILE- This Dec. 21, 2016, file photo shows the New York Stock Exchange. The U.S. stock market opens at 9:30 a.m. EDT on Friday, Sept. 7, 2018. (AP Photo/Mark Lennihan, File)

US stock indexes fall on rate, trade-war concerns

September 07, 2018 - 1:13 pm

NEW YORK (AP) — U.S. stock indexes fell on Friday after President Donald Trump said he may intensify his trade battle with China. A strong jobs report also pushed investors to gird for higher interest rates.

After bouncing between modest gains and losses in the morning, the S&P 500 was on pace for its fourth straight decline after Trump said he's ready to levy taxes on $267 billion of Chinese imports, which would be on top of tariffs already being considered on $200 billion of Chinese goods.

Earlier in the day, a surprisingly strong jobs report showed that hiring and workers' wage gains were healthier than expected last month. It's the latest evidence that the U.S. economy continues to power ahead, and it clears the way for the Federal Reserve to raise short-term interest rates at its meeting later this month and beyond. Treasury yields jumped in response.

KEEPING SCORE: The S&P 500 was down 8 points, 0.3 percent, at 2,870, as of 2 p.m. Eastern time.

The Dow Jones industrial average fell 131 points, or 0.5 percent, to 25,864, and the Nasdaq lost 15, or 0.2 percent, to 7,907.

RATE WATCH: Employers hired more workers last month than economists expected, and the unemployment rate remained near an 18-year low. That helped push up the average hourly wage by 2.9 percent from a year earlier, the fastest gain in eight years.

If wage growth keeps accelerating, it could feed into higher inflation throughout the economy. That in turn could push the Federal Reserve to get more aggressive about raising rates, something it has pledged to do slowly and steadily.

Higher interest rates can hurt stock prices because they make bonds look more attractive. The market went through a similar scenario in February, when that month's jobs report showed a surprisingly big increase in wages. But investors have been recently preparing themselves for a total of four rate increases for 2018 following comments from the Fed.

"What everyone's trying to figure out is at what point do you get the intersection of higher wages pushing into inflation and the Fed starting to get a little more aggressive," said David Joy, chief market strategist at Ameriprise Financial.

"We're not there yet, but this takes us one step closer to that, and historically, that's what brings expansions and bull markets to an end."

In the meantime, strong jobs data give further support to the view that the United States remains a bright spot for the global economy, which helps corporate profits and stock prices, Joy said.

TRADE WORRIES: With the economy so strong and corporate profits so high, stocks would likely be even higher than they are today if not for investors' worries about global trade, said Joy.

The United States has already imposed tariffs on $50 billion in Chinese imports, with Beijing following suit, and investors are worried about how much higher the total will rise. They're concerned that the escalating trade tensions will hurt corporate profits and overall economic growth.

"The underlying fundamentals of the economy are still quite healthy," Joy said, "but the longer this goes, the more destructive it's going to be for supply chains."

YIELDS: The yield on the 10-year Treasury jumped to 2.93 percent to from 2.87 percent late Thursday. The two-year yield rose to 2.69 percent from 2.62 percent.

DIVIDENDS DULLED: When bonds are offering higher yields, it can pull buyers away from stocks that pay big dividends. Utility stocks and real-estate investment trusts, which are among the market's highest dividend payers, had some of the day's steepest losses.

Utilities in the S&P 500 fell 0.9 percent, and real-estate investment trusts lost 1.3 percent.

UP IN SMOKE: Tesla sank after its chief accounting officer resigned just a month into the job. Dave Morton said he believes in Tesla and has no disagreements with its leadership about its financial reporting, but he was not expecting so much public attention and such a fast pace at the company when he joined on Aug. 6.

Tesla CEO Elon Musk also appeared on a podcast overnight in which he inhales from what the host says is a joint containing marijuana and tobacco.

Tesla fell 7 percent to $261.32.

TECH STEADY: Tech stocks have stumbled this week, a relatively rare occurrence for a group that has led the market for much of the last five years. But they held up better than the rest of the market on Friday, and tech stocks in the S&P 500 were down 0.1 percent for one of the mildest losses among the 11 sectors that make up the index.

Broadcom was one of the strongest stocks in the index after reporting stronger-than-expected profit for the latest quarter. The chipmaker's stock jumped 7.4 percent to $232.00.

MARKETS OVERSEAS: In Asia, Japan's Nikkei 225 index lost 0.8 percent, and the Kospi in South Korea dropped 0.3 percent. Hong Kong's Hang Seng index, which has dropped 18 percent since its peak in late January, was virtually unchanged.

In Europe, France's CAC 40 rose 0.2 percent, and Germany's DAX was virtually flat. The FTSE 100 in London fell 0.6 percent.

CURRENCIES: The dollar rose to 111.04 Japanese yen from 110.83 yen late Thursday. The euro fell to $1.1554 from $1.1625, and the British pound fell to $1.2916 from $1.2933.

COMMODITIES: Benchmark U.S. crude fell 36 cents to $67.41 per barrel. Brent crude, the international standard, slipped 12 cents to $76.38.

Gold slipped $4.90 to $1,199.40 per ounce.


AP Writer Annabelle Liang contributed from Singapore.

AP Editorial Categories: 
Comments ()