Stocks quickly cutting losses ahead of Trump's China press conference

Stocks were lower on Friday as traders braced for an upcoming news conference on U.S.-China relations from President Donald Trump.

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The Dow Jones Industrial Average fell 129 points, or 0.5%. The S&P 500 slid 0.5% while the Nasdaq Composite was up by 0.5%.

The major averages cut their losses after a Bloomberg News report said Trump was not pulling the U.S. from the phase one trade deal with China.

Trump said Thursday afternoon he would hold the news conference, knocking stocks down from solid gains. That announcement came after China approved a national security bill for Hong Kong that experts warn could endanger the city’s “one country, two systems” principle. That principle allows for additional freedoms that mainland China residents don’t have. The news conference is scheduled for 2 p.m. ET on Friday.

“Traders had expected the President to attack China about the virus as part of his upcoming campaign. But trade sanctions could and maybe would wound the economy just as the recovery is beginning to take hold,” said Art Cashin, director of NYSE floor operations for UBS. “No time has been set for the conference but it may be the key to trading and certainly will be center stage. Any breaking of early week lows could technically be a danger.”

White House economic advisor Larry Kudlow said Friday that people in Hong Kong are “furious,” adding: “the U.S. government is ... I’ll use the word furious at what China has done in recent days, weeks and months. They have not behaved well and they have lost the trust, I think, of the whole Western world.”

JPMorgan strategist Marko Kolanovic, who called the comeback for the market in March, said Thursday evening he was turning more cautious because of a possible economic clash with China.

“A complete breakdown of supply chains and international trade, primarily between the two largest economies (US and China), would justify equities trading drastically lower,” Kolanovic wrote.

Tensions between China and the U.S. have risen lately as Trump criticizes the Chinese government’s response to the coronavirus outbreak. U.S. lawmakers have also been critical of China increasing its stronghold over Hong Kong.

Paul Christopher, head of global market strategy at Wells Fargo, said he expects more rhetoric from the U.S. regarding Hong Kong and China, noting: “It could end up being a headwind once the market finishes pricing in all of this hopium.”

Bank of America and Wells Fargo led bank stocks lower, falling more than 1.6% each. Citigroup and JPMorgan Chase also dipped 1.9% and 1.7%, respectively.

Salesforce issued disappointing guidance for the second quarter. The company expects earnings ranging between 66 cents a share and 67 cents a share. Analysts polled by FactSet expected earnings guidance of 74 cents per share. Salesforce shares dropped 4.7%.

The major averages entered the session up solidly for the week. The Dow and S&P 500 are up more than 2.7% each week to date while the Nasdaq has advanced 0.5%. That weekly advance comes as traders increase bets on a successful reopening of the economy.

Stocks are also up sharply for the month, with the Dow and S&P 500 gaining over 3% each while the Nasdaq advanced 5.2% in May.

“The market has discounted the coronavirus very quickly and has correctly predicted the apex of the virus,” said Mike Katz, partner at Seven Points Capital. “Having said all that, prices are up there. The S&P 500 trading above 3,000 is pricing in a full recovery.”

“If there is a second wave of the virus that ends up being more detrimental than people think, then I would think the S&P 500 is not valued correctly,” said Katz.

—CNBC’s Patti Domm contributed to this report.