U.S. Stocks End Rally With China Tensions Rising: Markets Wrap

• Gains come on signs economies on the mend as lockdowns ease
• Trump plans Friday news conference on China; agenda unclear

U.S. stocks erased gains and ended lower after President Donald Trump said he’d hold a press conference Friday to discuss China, potentially stoking tensions between the world’s two largest economies.

The S&P 500 lost an advance of more than 1% on Trump’s announcement, with investors speculating the U.S. will take action against China that could destabilize the global economy, although the precise agenda was unclear. Traders have warily been watching an escalation between Washington and Beijing even as stocks surged for the past two days. Chinese lawmakers earlier approved a proposal for new national-security legislation in Hong Kong, a move Trump’s economic adviser called a “huge mistake.”

“The market’s going to trade on headlines. Could he come out and say something that might spook markets temporarily? Sure, but you know what’s more important than that? The fact that the Fed’s going to stand there with their safety-net,” David Spika, president of GuideStone Capital Management, said by phone.

Stocks fell for the first time in four days falling short of the longest rally of the pandemic era. Small caps that had been surging tumbled 2.5%, while bank and energy shares -- darlings of the latest rotation -- fell at least 1.6%. Tech also slipped, with Twitter losing almost 5% after Trump turned his ire on the company, threatening to loosen legal protections for social-media platforms.

Earlier gains came as data showed the economic damage from the coronavirus pandemic was less severe than anticipated. U.S. states’ jobless rolls shrank for the first time during the outbreak even as millions more Americans filed for unemployment benefits, while readings on durable goods orders and personal consumption beat forecasts. Federal Reserve Bank of St. Louis President James Bullard said the economy may already have bottomed.

“The stock market believes the recovery will be about as swift as it possibly can be. It certainly seems to be pricing a very quick and vigorous recovery,” said Jared Kizer, chief investment officer of Buckingham Wealth Partners.

Elsewhere, European stocks climbed amid optimism over economies reopening and a European Union fiscal stimulus plan. Shares rose throughout most of Asia, though the Hang Seng Index flirted with the lowest level since March after the U.S. said it could no longer certify Hong Kong’s political autonomy, a move that could have far-reaching consequences.

Here are some key events coming up:

• Federal Reserve Chairman Jerome Powell participates in a virtual discussion on Friday.
• Euro-area data due Friday is forecast to show consumer inflation fell to 0.1% in May from 0.4% the previous month.

These are some of the main moves in markets:

Stocks

• The S&P 500 fell 0.2% as of 4 p.m. New York time.
• The Russell 2000 lost 2.5% and the Dow Jones Industrial Average fell 0.6%.
• The Stoxx Europe 600 Index gained 1.6%.
• The MSCI Asia Pacific Index climbed 0.9%.

Currencies

• The Bloomberg Dollar Spot Index dipped 0.3%.
• The euro increased 0.5% to $1.106, the strongest in two months.
• The Japanese yen strengthened 0.1% to 107.63 per dollar.

Bonds

• The yield on 10-year Treasuries climbed one basis point to 0.69%.
• Germany’s 10-year yield declined one basis point to -0.42%, the biggest fall in a week.
• Britain’s 10-year yield increased one basis point to 0.206%.

Commodities

• The Bloomberg Commodity Index rose 0.1%.
• West Texas Intermediate crude dipped 2.6% to $33.65 a barrel.
• Gold futures climbed 0.3% to $1,732 an ounce.

— With assistance by Adam Haigh, David Wilson, Yakob Peterseil, and Todd White