The major domestic equity indexes closed out Wednesday’s trading in negative territory as rising trade tensions between the United States and China weighed on Street sentiment.
A day after Washington’s temporary easing of curbs against Huawei Technology provided some respite to the equity markets, reports that the White House could impose restrictions on another Chinese technology company was met with new concerns. Media reports on Wednesday said the Trump administration was considering sanctions on video surveillance firm Hikvision.
Fears that tit-for-tat tariffs and other retaliatory actions by the United States and China will hamper global growth have kept investors on edge, putting the S&P 500 on track to post its first monthly decline since the December sell-off.
A substantial decline in the shares of Qualcomm and Lowe’s helped pull the S&P 500 index into the red once again.
A federal judge ruled that Qualcomm illegally suppressed competition in the market for smartphone chips by threatening to cut off supplies and extracting excessive licensing fees. The chipmaker’s shares fell 10.9%.
Lowe’s shares hit the skids to the tune of 11.8% after the company reduced its full-year earnings projection.
Nordstrom also reduced its sales and earnings forecasts, sending its shares down 9.2%.
Target bucked the downward trend of retailers with its share price rising 7.8%, the most among S&P 500 companies, after the retailer’s quarterly same-store sales and earnings numbers exceeded Street expectations.
The release of minutes from the Federal Reserve’s latest policy meeting, in which officials agreed that their patient approach to setting monetary policy could remain in place “for some time,” had little impact on Wall Street’s major indexes.
Approximately 6.00 billion shares changed hands on the major domestic equity exchanges, as compared to the 6.94 billion share average over the past 20 trading days.
Fed Will Have Patience According to its April 30-May 1 Meeting
The Fed at its last meeting agreed that their current patient approach to setting monetary policy could remain in place “for some time,” meaning it sees little need to change rates in either direction.
“Members observed that a patient approach…would likely remain appropriate for some time,” with no need to raise or lower the target interest rate from its current level of between 2.25 and 2.5 percent, the Fed on Wednesday reported in the minutes of the central bank’s April 30-May 1 meeting.
Recent weak inflation was viewed by “many participants…as likely to be transitory,” while risks to financial markets and the global economy had appeared to ease – a judgment rendered before the Trump administration imposed higher tariffs on Chinese goods and took other steps that intensified trade tensions.
The minutes indicated that the Fed is delving deep into the mechanics of how they could best structure their holdings of several trillion dollars of securities to battle a future economic downturn.
“Many participants,” the minutes noted, saw advantage in stocking the portfolio with shorter-term securities, which could, in a crisis, be swapped for long-term bonds in hopes of lowering the longer-term interest rates that impact home mortgage rates, business borrowing, and a number of forms of credit important for the economy.
However, a staff report on various balance sheet strategies posed a dilemma. If the Fed skewed its bond holdings toward shorter-term Treasuries, it might come at the cost of higher longer-term rates now – in effect tightening credit conditions for many borrowers.
That would “imply that the path of the federal funds rate would need to be correspondingly lower to achieve the same macroeconomic outcomes.” In the scenarios being discussed that would, ironically, mean the Fed would have less room to cut rates in a crisis – and be more likely to have to rely on its balance sheet tools to boost the economy.
Though the support for a “patient” approach to rate hikes was widespread, according to the minutes, “a few” participants did warn of the risk of higher inflation and a possible need for higher rates given the low rates of unemployment. “Several” warned, on the other hand, that inflation could weaken.
The Fed meets next on June 18-19, when policymakers will update their economic projections, and incorporate any new risks they see raised by recent Trump administration trade policies.
While Fed officials have largely downplayed the trade dispute as a short-term problem, they have of late begun discussing the risks if the tariffs and trade tensions persist and begin to reshape global supply chains and pricing.
In comments in Hong Kong overnight, St. Louis Fed president James Bullard said that a failure to resolve the trade dispute in the near term could change global trading patterns and is another reason for the Fed “to tread carefully.”