U.S. stocks finished broadly lower Thursday, with the U.S. decision to impose tariffs on steel and aluminum imports from the European Union, Canada and Mexico sparking promises of retaliation by trade partners and reigniting fears of a global trade war.
And oil, which helped drive a rally for stocks Wednesday, also fell. While stocks ended May on a sour note, major indexes still posted monthly gains, with the small-cap Russell 2000 outpacing its large-cap rivals.
What have the main benchmarks done?
The Dow Jones Industrial Average DJIA, -1.02% fell 251.94 points, or 1%, to end at 24,415.84, while the S&P 500 SPX, -0.69% declined 18.74 points, or 0.7%, to finish at 2,705.27. The Nasdaq Composite COMP, -0.27% shed 20.34 points, or 0.3%, to close at 7,442.12.
Thursday’s performance left the Dow with a 1% monthly rise, while the S&P 500 advanced 2.2% and the Nasdaq booked a 5.3% increase. The Russell 2000 index of small-cap stocks RUT, -0.87% left its large-cap rivals behind with a 6% May advance. The index finished at an all-time high on Wednesday, up 1.4%, to 1,646.36, and rose in early action Thursday before retreating 0.8% on the day.
What’s driving markets?
The U.S. will impose tariffs on steel and aluminum products from the EU, Mexico and Canada beginning Friday, Commerce Secretary Wilbur Ross said. Canada and Mexico had previously received temporary exemptions as negotiators worked on a new version of the North American Free Trade Agreement, or Nafta.
Canadian Prime Minister Justin Trudeau said Ottawa would impose a 25% tariff on steel imports from the U.S., a 10% tariff on aluminum and other U.S. goods. Mexico said it would target several U.S. goods in response.
The EU has announced plans for its own retaliatory measures, with classic American industries such as whiskey and motorcycles potentially under threat.
In Italy, the antiestablishment League and 5 Star Movement struck a deal to revive a coalition government, likely bringing an end to a political crisis that triggered an early-week selloff for global markets.
What are analysts saying?
The initial round of tariff threats by the Trump administration and the promises of retaliation by trade partners earlier this year were initially viewed by investors as opening gambits in negotiations that would lead to agreements, said Art Hogan, chief market strategist at B. Riley FBR.
“I think we’re at that point in time where the market had worked under the assumption that this was the ‘art of the deal,’ and now it feels like we’re moving backwards not forwards,” Hogan said.
That now needs to get priced back into the market, he said.
“The on-again, off-again trade war appears to be on again,” said Ed Campbell, portfolio manager at QMA.
“We have a year where earnings growth is likely to be 20%-plus, but we keep getting hit with different risk scenarios. First, it was interest rates and inflation back in January, then trade and geopolitical risk fears, and now we’ve got Italian politics to worry about as well,” he said. “What you’re seeing is the market building in bigger risk premia.”
Which stocks were in focus?
Steel and aluminum stocks rallied initially, but subsequently pared gains or turned lower. They remain down sharply from levels seen following the Trump administration’s initial tariff announcements in March. Shares of AK Steel Holding Corp. AKS, -1.31% fell 1.3%, while U.S. Steel Corp. shares X, +1.71% advanced 1.7% and Nucor Corp. NUE, +0.14% held on for a 0.1% gain.
Shares of General Motors Co. GM, +12.87% surged 12.9% after the car maker said the SoftBank Vision Fund plans to invest $2.25 billion in its self-driving unit. Shares of electric-car maker Tesla Inc. TSLA, -2.40% meanwhile, dropped 2.4%.
Several retailers reported earnings. Dollar General Corp. shares DG, -9.37% slid more than 9% after the discount retailer posted disappointing revenue and same-store sales. Meanwhile, Dollar Tree Inc. DLTR, -14.28% shares dropped 14.3% after results.
Sears Holdings Corp. SHLD, -12.46% fell 12.5% after the struggling department-store chain swung to a fiscal first-quarter loss and revenue fell sharply.
Express Inc. EXPR, -7.10% slumped 7.1%, despite earnings that beat estimates.
Lululemon Athletica Inc. LULU, -0.55% Ulta Beauty Inc. ULTA, -2.59% and Costco Wholesale Corp. COST, -0.70% are due to report quarterly results after the market close.
In potential fallout from trade-war headlines and possible retaliation from the EU, shares of Harley-Davidson Inc. HOG, -2.17% fell 2.2%. Caterpillar Inc. CAT, -2.28% dropped 2.3%, while Boeing Co. BA, -1.68% lost 1.7%.
Visa Inc. V, +0.06% was the only component of the Dow to end in positive territory, eking out a 0.1% rise.
What did economic data show?
The PCE index, the Federal Reserve’s preferred inflation gauge, rose 0.2% in April, data showed Thursday, as did the core rate that strips out energy and food prices. Over the past 12 months, the rate was unchanged at 2%, while the core rate was at 1.8%.
Consumer spending jumped 0.6% after a revised 0.5% gain in March. Economists surveyed by MarketWatch had forecast a 0.4% rise.
First-time jobless claims fell 13,000 in the week ended May 26 to 221,000, compared with a forecast of 225,000.
The Chicago purchasing managers index for May jumped 5.1 points to 62.7, its highest reading since January.
Separately, U.S. pending home sales fell 1.3%, the National Association of Realtors said, and mortgage rates were seen to have halted a long upward march.
What are other markets doing?
The pan-European Stoxx Europe 600 Index SXXP, -0.63% declined 0.6%, while Italy’s FTSE MIB stock benchmark I945, -0.06% lost 0.1%.
The euro EURUSD, +0.0257% was up 0.2%, while the ICE U.S. Dollar Index DXY, -0.10% was 0.2% lower.
The yield on the 10-year Treasury note TMUBMUSD10Y, +0.51% was down 1.5 basis points at 2.829%. Gold futures GCM8, -0.15% edged higher, while U.S. oil futures CLN8, -0.16% ended 1.7% lower at $67.04 a barrel.
