TOPLINE

The stock market fell sharply on Friday, as investors braced for an upcoming press conference in which President Trump is expected to ramp up pressure on China in response to a new national security bill for Hong Kong.

KEY FACTS

The Dow Jones Industrial Average fell 0.9%, over 200 points, at Friday’s open, while the S&P 500 was down 0.6% and the tech-heavy Nasdaq lost 0.1%.

Stocks moved lower as Wall Street braced for an upcoming news conference on U.S.-China relations from President Trump on Friday, though few details have been released.

His administration is widely expected to ramp up pressure on China in response to a newly passed national security bill for Hong Kong, which effectively rendered the region no longer politically autonomous from China.

Trump first announced the news conference late on Thursday, causing stocks to tumble and turn negative in the final hour of trading.

On Friday, the White House’s top economic advisor, Larry Kudlow, told Fox News that the U.S. government is “furious” with China’s behavior in recent weeks.

JPMorgan strategist Marko Kolanovic, who correctly predicted the market’s recovery in late March, warned investors to be more cautious because of a possible economic clash with China. 

U.S. consumer spending plunged by a record 13.6% in April, more than the 12.9% expected. The U.S. savings rate, on the other hand, surged 33% to an all-time high as more Americans stockpiled cash and cut back on spending amid the pandemic.

Tangent

Shares of Twitter continued to fall on Friday, after President Trump signed an executive order targeting social media platforms late on Thursday. The move comes after Twitter for the first time fact-checked some of Trump’s tweets, prompting outrage from the president.

Crucial quote

“A complete breakdown of supply chains and international trade, primarily between the two largest economies (U.S. and China), would justify equities trading drastically lower,” Kolanovic said in a recent note.

What to watch for

Rising U.S.-China tensions could threaten the market’s recent rally. Trump has criticized the Chinese government’s response to the coronavirus pandemic and has previously touted a controversial theory that the outbreak originated in a Wuhan lab. U.S. lawmakers have also increasingly pushed back on China increasing its grip over Hong Kong. Secretary of State Mike Pompeo confirmed to Congress on Wednesday that Hong Kong is no longer “politically autonomous” from China. Not only does that threaten the U.S.-China trade deal, it could also result in new sanctions on Chinese officials on Friday, when Trump gives his news conference. “There’s a wide range of ways the U.S. could respond which is what’s making people nervous, especially as it’s likely to lead to another tit-for-tat spar between the two countries,” says Craig Erlam, senior market analyst for Oanda.

Key background

The market is still up for the week, thanks to increasing optimism on Wall Street over a successful reopening of the economy and a potential coronavirus vaccine. Stocks broke back above two crucial milestones on Wednesday that show the market’s recovery from the coronavirus downturn in late March. The Dow closed above 25,000 and the S&P closed above 3,000, both for the first time since March.

Further reading

Dow Falls 150 Points After Trump Moves To Pressure China (Forbes)

Dow Closes Above 25,000 For First Time Since March (Forbes)

Trump Signs Executive Order Attempting To Restrict Liability Protections Of Internet Companies Like Twitter (Forbes)

As Las Vegas Reopens, Should Investors Bet On Casino Stocks Rebounding? (Forbes)

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