Dow slumps over 400 points after weak China data damps sentiment

U.S. stocks were sharply lower Tuesday morning, resuming a pullback as investors shunned assets viewed as risky following weak China international trade data for July.

Bank shares were also in focus after Moody’s Investors Service said it may downgrade its credit ratings on six major U.S. banks.

How are stocks trading

  • The Dow Jones Industrial Average
    dropped 456 points, or 1.35, to 35,017.

  • The S&P 500
    was down 50 points, or 1.1%, at 4,468.

  • The Nasdaq Composite
    shed 187 points, or 1.3%, to trade at 13,806.

The Dow rose 408 points, or 1.2%, on Monday, while the S&P 500
gained 0.9% and the Nasdaq advanced 0.6%.

What’s driving markets

A risk-off tone swept global markets after weak China trade data heightened concerns about a slowing global economy.

China’s exports fell 14.5% for the year to July, the biggest decline since the outbreak of the COVID-19 pandemic in February 2020, while imports slid 12.4%, worse than forecast.

The news highlighted “that the world’s second biggest economy is being dragged lower by weakness in global demand and a domestic slowdown,” said Jim Reid, strategist at Deutsche Bank.

Assets sensitive to China demand were hit, with industrial commodities like crude oil
and copper
lower. Shares in London-listed miners were under pressure.

Perceived havens were firmer, with the dollar
gaining ground and government bonds attracting buyers, pushing Treasury yields

Also weighing on sentiment was a possible downgrade by Moody’s of six major U.S. banks, adding to concerns about the fragility of the financial sector as it deals with the sharp rise interest rates since March 2022.

Stocks fell last week, with market watchers looking for continued consolidation after a strong 2023 rally led largely by megacap tech stocks that has seen the Nasdaq Composite rise more than 30% year to date while the S&P 500 advanced toward its all-time high from January 2022.

“We believe the market has entered a consolidation phase [within] an uptrend that will likely last 1-3 months with support at 4,328” for the S&P 500, said Kevin Dempter, analyst at Renaissance Macro Research, in a Tuesday note.

“Patience will be the most important discipline for investors during this period especially [within] mega-cap tech given the overbought conditions and sentiment extremes in the space,” he wrote. “Ideally, we would look to take advantage of oversold conditions in uptrends but with a focus on a longer-term trade horizon and not tactical.”

Data showed the U.S. trade deficit narrowed by 4.1% to $65.5 billion in July.

Philadelphia Fed President Patrick Harker said policy makers “may be at the point where we can be patient and hold rates steady.

Companies in focus

  • Paramount Global shares
    fell 1.2%, despite the media company’s adjusted earnings beating expectations as it also agreed to sell Simon & Schuster for $1.6 billion to KKR.

  • Beyond Meat Inc.
    shares tumbled 20.6% following an earnings report that included a 30% drop in revenue year-over-year for the struggling maker of plant-based meat items.

  • Eli Lilly & Co. 
    shares shot up 17%, after the drug giant reported second-quarter profit and revenue that climbed above expectations and provided a big boost its full-year outlook, as results were helped by the $579 million received from the sale of rights for Baqsimi. 

  • United Parcel Service Inc.
    shares dropped 1.1%, after the package delivery giant reported second-quarter revenue that fell short of expectations and cut its full-year outlook, citing the volume impact from labor negotiations.

  • Billionaire Charlie Ergen is combining his two telecom companies, pay-TV provider Dish Network Corp. 
     and satellite-communications company EchoStar Corp. 
     in an all-stock deal, the companies said Tuesday, confirming an earlier report by The Wall Street Journal. Dish shares rose 5.7%, while EchoStar dropped 2.8%.

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