After displaying resilient trading action on Monday, the markets became more concerned about the US China trade deal unraveling causing investors to bolt. Trading volume moved up which indicated that big institutional players were starting to sell. While IBD has markets listed as being in a rally both the S&P 500 and the Dow moved back to near term support levels meaning that IBD’s reading could be switched to “rally under pressure”. At the close the Dow off 473 points at 25,975.
Pressure is mounting regarding the fate of the US China trade deal. On the good side we have word that China’s top trade negotiator will be in D.C. this week as trade talks continue but on the bad side the changes of the deal falling apart increased when China reneged on previously agreed upon points which prompted President Trump to announce more and higher tariffs starting this Friday. The gurus fear that these new tariffs could cut China’s GDP growth rate by upwards of 2% and affect the entire global supply chain since Europe exports to China which then exports to the US and back to Europe. The South China Morning Post reported that smaller Chinese manufacturers who export to Europe and America were “in shock” at the sudden tariff threat and fear they will lose customers who could possibly shift purchases to manufacturers outside China. Which way the cat jumps at this point is unknown so caution is advised.
Shares of Boeing came under pressure after Barclay’s downgraded the stock citing a longer time period for 737 Max production to get back on track. Barclay’s does not expect a return to normal production until Q4 and that by then they think Boeing will be dealing with about 300 planes in storage not to mention the prospect of lost orders. Meanwhile the Air Force gave Boeing a $5.7 billion 10-year contract to provide post production combat modifications for the new KC-46 Pegasus aerial refueling tankers.