U.S. stock markets closed lower on Monday after an impressive last week. Market participants remained concerned about two key inflation data to be released this week. The U.S.-China trade negotiations were another worry for investors. All three major stock indexes ended in negative territory.
How Did the Benchmarks Perform?
The Dow Jones Industrial Average (DJI) tumbled 0.5% or 200.52 points to close at 43,975.09. Notably, 19 components of the 30-stock index ended in negative territory and 11 finished in positive territory. The tech-heavy Nasdaq Composite finished at 21,385.40, declining 0.3%, due to the weak performance from semiconductor giants.
The S&P 500 fell 0.3% to finish at 6,373.45. Out of the 11 broad sectors of the broad-market index, eight ended in negative territory while three ended in positive territory. The Technology Select Sector SPDR (XLK) and the Energy Select Sector SPDR (XLE) tanked 0.7% and 0.8%, respectively. On the other hand, the Communication Services Select Sector SPDR (XLC) rose 0.5%.
The fear gauge CBOE Volatility Index (VIX) was up 7.3% to 16.25. A total of 15.5 billion shares were traded on Monday, lower than the last 20-session average of 18.3 billion. Decliners outnumbered advancers on the NYSE by a 1.18-to-1 ratio. On the Nasdaq, a 1.24-to-1 ratio favored declining issues.
Inflation Data in Focus
This week, the major focus will be on two key inflation data. The consumer price index (CPI), which is commonly known as household inflation and the producer price index (PPI) will be released on Tuesday and Thursday morning, respectively. Soft reading of these two key inflation data is likely to boost investors’ sentiment for the first interest rate cut by the Fed in September.
Expectations of a rate cut have gathered steam following unexpectedly weak jobs additions in July as well as significantly downwardly revised jobs data for both June and May. The Fed will conduct its important Jackson Hole Symposium for Economic Policies during Aug. 21-23. The release of CPI and PPI data ahead of the symposium will be important to set the tone for the September FOMC meeting.
The CME FedWatch currently shows an 84.5% probability that the central bank will reduce the benchmark lending rate by 25 basis points in September. This probability was 80.3% last week. The existing Fed fund rate is in the range of 4.25- 4.5%.
Revenue-for-Export Deal
President Donald Trump confirmed that the U.S. government has reached a deal with semiconductor giants NVIDIA Corp. NVDA and Advanced Micro Devices Inc. AMD, in which these two companies will pay 15% of their revenues from some chip sales to China. In return, these companies will get licenses for AI-powered chip sales in China.
Earlier, President Trump banned NVDA’s AI-powered H20 accelerator and AMD’s MI308 AI chips for being exported to China. Several analysts have raised concern that this measure will significantly impact the margins of these companies. Moreover, the new strategy may set a dangerous precedent through which the Government will tax critical U.S. exports, potentially extending beyond semiconductors.
The stock prices of NVDA and AMD fell by 0.4% and 0.3%, respectively. NVIDIA and Advanced Micro Devices currently carry a Zacks Rank #3 (Hold) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
U.S.-China Trade Negotiations
In another development, the President extended the date for imposition of tariffs on Chinese goods by another 90 days. The previous deadline was up to mid-night Aug. 11. The new executive order signed by Trump will maintain the status quo on the U.S.-China tariff front till mid-November.
In April, the Trump administration imposed a massive 145% tariff on all Chinese imports. As a result, China retaliated by levying 125% duties on all U.S. exports. However, following discussions between the two countries in July in Geneva, the United States restricted itself to imposing a 30% tariff on China. At the same time, China also reduced its duties on U.S. goods to just 10%.
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Advanced Micro Devices, Inc. (AMD): Free Stock Analysis Report NVIDIA Corporation (NVDA): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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