Financial markets experience corrective phases amid persisting trade conflicts.
Rewritten Article
Key Points:
- Stock Market Plummets as Investors Flee Amid Trade War Fears
- Gold Surges as Safe Haven of Choice for Anxious Investors
- S&P 500 Dips Below Crucial Support, Eyes Potential Bounce Back
In a bleak show of market nerves, stocks took another tumble on Thursday, with tech stocks leading the charge lower. The Nasdaq Composite saw a near 2% plunge, hauling its weekly losses to an unpleasant 5%. The Russell 2000 was down by 1.5%, shedding 4% in a week. The Dow Jones Industrial Average experienced a 1.3% drop, adding 4.7% to its weekly tally. The S&P 500 suffered a 1.4% setback.
For the S&P 500, this week's loss currently stands at a daunting 4%, thrusting it into correction territory. A fascinating observation is that the selloff has been relatively orderly, with volatile swings but no wild spikes reminiscent of panic selling. While investors seem to be offloading their shares, there's a distinct lack of urgency—no fear-induced dumping of holdings yet.
Since President Trump took office, the market has endured an 8% loss. This begs the question: is this correction a reaction to escalating tariff fears? On Wednesday, President Trump threatened the EU with 200% tariffs on alcohol exports if they retaliated with their own duties. With proposed tariffs popping up daily and their value fluctuating, it has become quite a challenge for companies to make accurate predictions and budget effectively. Uncertainty typically sends shivers down the spine of the market, as we're currently witnessing. Companies like Apple are on track for their worst week since the pandemic, reminiscent of the turmoil in 2020.
The anxieties surrounding the trade war have made their way to the ordinary consumer too. A Conference Board survey recently indicated that the number of people planning vacations in the coming six months is at its lowest in 15 years. This gloomy outlook has affected sectors like tourism, causing companies like Carnival Cruise to plummet nearly 35% since its peak in January. The retail sector is also bracing itself for a decrease in consumer spending, with businesses like Ulta Beauty warning of a sales downturn despite beating forecasts in their latest earnings report. Although shares are indicated to rise by 6% in premarket, Ulta Beauty has plummeted 28% so far this year and hit a new 52-week low on Thursday.
On a more optimistic note, Senate Democrats will reportedly vote in favor of the House's Continuing Resolution, preventing a potentially costly government shutdown and preserving a sense of stability during these volatile times.
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Another reason we're discussing recession fears has to do with oil. As crude oil inches closer to closing this week above its seven-week losing streak, falling oil prices are often seen as a recession indicator. Gold, another commodity frequently impacted by concerns of a recession, is trading above $3,000 in the premarket and hitting all-time highs.
For today, there are several factors to keep an eye on. Let's start with equities and their 200-day moving average (DMA). Many investors view the 200 DMA as a significant line of support. Once prices fall below this level, as they have now, the DMA becomes resistance. Currently, the S&P 500's 200 DMA sits around 5739. With the S&P closing at 5521 last night and posturing for a significant weekly loss, it's possible we could see a rally. However, until we break above that moving average, caution is advisable. In the premarket, equity index futures are trending upward, and I'm anticipating one of two scenarios:
- We see a strong Friday due to oversold conditions and short covering, or
- The rally falters because investors are wary of holding long positions as we approach the weekend amid an onslaught of market-changing news. It's essential to note that even a strong Friday will not guarantee a prolonged rally unless we close above that 200 DMA. A crucial factor for today's market dynamics will likely be volatility. VIX closed on Thursday at 24.66 and remains slightly lower in the premarket. If volatility doesn't contract further or if it expands, it's likely that a short-term rally won't hold.
Stay loyal to your investing strategy and long-term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, and should not be construed as, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.
Enrichment Data:
In the context of the trade war, Alaska's cruise industry is caught in the crosshairs. The implications are primarily speculative and center around potential policy changes rather than immediate effects. Here are some points to consider:
- Jones Act and Potential Waiver: US Senator Dan Sullivan has threatened to seek a waiver to the Jones Act, a law that requires foreign-flagged cruise ships to call at a Canadian port when traveling between US ports. This could potentially enable Alaska-bound cruise ships to bypass Canadian ports, depriving British Columbia of substantial income[1][2].
- Economic Impact on Canada: Canadian ports, specifically Vancouver and Victoria, earn significant revenue from cruise tourism. Vancouver alone anticipates over 300 cruise ship visits in 2025[1]. If cruise ships bypass these ports, there would likely be substantial economic losses for Canada.
- Trade Tensions and Tourism: Escalating trade tensions between the US and Canada have led some Canadians to boycott travel to the US, which may indirectly impact cruise bookings involving US destinations[2]. However, as of now, there has been no substantial impact on cruise bookings for 2025, as most bookings were made in advance[3].
- General Trade War Impact: An escalating trade war could potentially lead to declines in travel demand and economic output in the US travel sector, including cruises, although this would primarily be a long-term concern[4].
Overall, while there are potential threats to the cruise industry due to trade tensions, the immediate consequences are minimal, and the situation remains fluid, pending policy decisions.
- The S&P 500, which has entered correction territory, lost 4% this week due to investor fears of escalating tariffs between the US and EU, as indicated by President Trump's threat of 200% tariffs on alcohol exports.
- As a result of the trade war and tariff fears, tech stocks led the way in a significant market drop, with Apple heading for its worst week since the pandemic.
- The tourism sector, including Cruise companies like Carnival, may be affected by these trade-related anxieties, as indicated by a Conference Board survey showing a 15-year low in planned vacations.
