(Bloomberg) -- Equity futures tumbled as trading resumed Sunday, as investors continue to grapple with the increasingly complex task of assessing the impact of an escalating trade war on the economy and corporate profits.
September contracts on the S&P 500 fell 1.3% as of 6:01 p.m. in New York, while futures on the Nasdaq 100 fell 1.7%. The swings followed a sell-off on Friday that sent benchmark gauges to their third 2%-plus plunge of August, now likely to be the second down month for equities of 2019.
Shares are being swayed by events from before and during the weekend. Stocks plunged Friday after Trump warned of an unspecified response to China’s plan to slap new tariffs on $75 billion of U.S. goods. After markets closed, he said he’d hike existing tariffs, applied to about $250 billion in Chinese goods, to 30% from 25% as of Oct. 1. He also said a new round on $300 billion in goods will be taxed at 15%, up from 10%.
“This is sort of the norm, in terms of what’s going on, a lot of the market activity has been geopolitically driven and the president escalating the trade war with China,” David Katz, chief investment officer at Matrix Asset Advisors in Westchester, New York. “But that’s unfortunately something investors are coming to live with. There’s nothing much one can do preemptively either way.”
The back-and-forth all but blotted out comments by Federal Reserve Chairman Jerome Powell, who said the U.S. economy is in a favorable place but faces “significant risks,” reinforcing bets for another interest-rate cut next month.
Moves in futures follow four straight down weeks that pushed the S&P 500 almost 6 percent below its record high set July 26. Volatility has surged in August, with more than half its sessions seeing swings of 1% or more, though U.S. shares still more than 20% above levels at the end of December.
The S&P 500, which closed Friday at 2,847.11, has twice bounced back from violent sell-offs in August. When the index fell to 2,844 in the month’s first few days, bulls sent the gauge 3.3% higher over the next three days. A virtually identical rally occurred again a week later when stocks fell to 2,840.
Swings like those have frustrated anyone trying to chart a coherent course in the market. Reasons for anxiety are piling up. Yields on government bonds are sending grim signals about the economic future, with the 10-year Treasury yield hovering near 1.5%, while estimates for corporate profits have sagged. On Sunday, two top aides said Trump has the authority to force American companies to leave China, as he threatened on Twitter, yet whether he invokes those powers is another question.
“For these events to unfold on the eve of one of the slowest trading weeks of the year creates market crash potential,” said Michael O’Rourke, JonesTrading’s chief market strategist. “Crowded complacent longs combined with illiquid trading, expensive valuations, narrow leadership, slowing earnings and an unparalleled peacetime policy uncertainty place markets in a dangerous position.”
The sell-off has pushed the S&P 500 below a level that matches its high-water mark from January 2018, meaning people who bought back then, during the biggest rally of Trump’s presidency, remain stuck. Of greater interest to chart analysts, the index now sits just 7 points above lows set during earlier August plunges.
Dip buyers stepped in when the S&P neared 2,840 twice before, fueled by optimism the economy is strong and the trade war resolvable. Whether they’ll be as confident after Trump tweeted that the U.S. would be “better off without“ China is an open question.
Chart analysts are watching 2,820, twice an intraday low for the S&P 500 this month. If that’s breached, 2,800 becomes the line to watch, according to Frank Cappelleri, senior equity trader and market technician at Instinet LLC. It’s roughly the 200-day moving average that’s supported the gauge all year and also a spot where stocks peaked three times late last year.
“It’s good that there are downside reference points that are clear to market technicians -- 2820, then 2800, June low, May low,” Cappelleri said by phone. “What’s not so great is all the uncertainty along the way.”
To contact the reporter on this story: Vildana Hajric in New York at vhajric1@bloomberg.net
To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Chris Nagi, Courtney Dentch
©2019 Bloomberg L.P.
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