Dow jumps more than 300 points, making back more than half of Monday’s drop

Stocks rose on Tuesday, regaining some of the lost ground following a steep sell-off in the previous session, as investors weighed the impact of the escalating trade war between the United States and China.

The Dow Jones Industrial Average rose 314 points, led by a gain in Coca-Cola shares. The S&P 500 advanced 1.2% as tech shares outperformed. The Nasdaq Composite climbed 1.4%.

Boeing and Apple shares gained 2% and 0.8%, respectively, while Caterpillar advanced 1.8%. Bank shares also rose broadly. Citigroup, Bank of America and J.P. Morgan Chase all traded more than 1% higher while Wells Fargo shares climbed 0.7%.

Greg Luken, CEO of Luken Investment Analytics, thinks this is a “dead-cat bounce,” however. “I think this is going to last for a while,” he said. “This is not something that’s going to be resolved tomorrow and anybody who says they know exactly how this will play out is spinning a yarn.”

“We’ve got an administration that is a disruption innovation,” Luken added. “Only history will tell us if this is good or bad.”

Major U.S. indexes tumbled Monday after news that China plans to raise tariffs on $60 billion worth of U.S. imports, beginning on June 1. The list of targeted goods ranges from TV cameras to tequila, and includes a range of agricultural products. Beijing’s move comes after Washington announced last week it would increase tariffs from 10% to 25% on a bulk of Chinese imports.

On Monday, the Dow and S&P 500 fell 617 points and 2.4%, respectively, their worst performances since early January. The Nasdaq dropped 3.4%, its biggest one-day loss of 2019.

In a note to clients Monday, Citi said its China economists are “cautiously optimistic that a trade deal can eventually be signed.” But added that the “window to avoid further escalations in US/China tensions is closing fast.”

“Ongoing trade flare-ups may continue to swing the stocks in the near-term, but we think the market may have priced a lot of this in,” Citi said.

According to the Washington Post, the office of the U.S. Trade Representative has already gone ahead with first steps on slapping tariffs on roughly $300 billion of Chinese imports.

Mike Wilson, Morgan Stanley’s chief U.S. equity strategist, told clients in a note Monday that higher U.S. tariffs on Chinese goods will likely turn into a headwind for corporate earnings — and the economy could fall into a recession if the country’s trade war keeps escalating.

Stocks doing business in China got hit the hardest. Apple, Intel and Caterpillar have all stumbled more than 10% in the six trading days since Trump’s surprise tweet announcing the higher levies.

Coca-Cola shares rose 2.4% after Morgan Stanley upgraded it to overweight from equal weight. The bank named the soda maker its “top mega-cap staples pick. ”

CNBC

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya