U.S. stocks swung into negative territory, ending Tuesday’s session lower after a closely watched portion of the Treasury yield curve inverted further and stoked fears of a recession.
Meanwhile, investors digested conflicting commentary about progress in U.S.-China trade talks and hoped for forthcoming progress. Earlier in the session, the Dow had been up as many as 155 points.
Here’s where the market settled by the end of regular equity trading:
S&P 500 (^GSPC): -0.32%, or 9.22 points
Dow (^DJI): -0.47%, or 120.93 points
Nasdaq (^IXIC): -0.34%, or 26.79 points
10-year Treasury yield (^TNX): -6.8 bps to 1.476%
U.S. Treasurys were bid up on the long end of the curve, sending these yields sharply lower. The yields on the 10-year bond and 2-year note inverted again Tuesday, with the spread between these widening to 4.6 basis points around market close. An inversion between the 2-year and 10-year yields – which occurs when the yield on the former rises above that of the latter – has been widely viewed as a reliable recessionary harbinger.
Meanwhile, as of Tuesday afternoon, Chinese officials had still not confirmed to media that phone calls between U.S. and Chinese trade negotiators took place over the weekend, as President Donald Trump had said occurred. China’s Foreign Ministry spokesperson said Tuesday he was “not aware of it,” according to Bloomberg, and the editor-in-chief of Chinese outlet the Global Times said earlier in the week via tweet that he did not believe the calls took place.
Nevertheless, domestic equities had demonstrated an upward bias Tuesday morning before gains lost steam, with investors still largely clinging to Trump’s recent affirmations that U.S. and Chinese delegations would get back to the negotiating table soon for further trade talks.
Over the course of August, investors have been whipsawed by a Twitter-storm of trade policy updates and new tariff imposition announcements from Trump and Chinese officials.
These market gyrations, however, made less of a dent in consumer confidence than many analysts had expected, according to new data Tuesday. The Conference Board’s headline consumer confidence index fell less-than-expected in August to a reading of 135.1, down less than a point from July’s 135.7, versus economists’ expectations for a drop to 129.0.
At a time when a trade-related tweet could spark a sell-off in risk assets, many analysts have underscored new ways for investors to seek refuge.
Goldman Sachs analysts led by David Kostin highlighted three main strategies for investors to position themselves amid trade uncertainty: look to services-providing companies, domestic-facing firms and dividend-paying stocks.
Services stocks – including major companies such as Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG, GOOGL) and J.P. Morgan (JPM) – have “less foreign input costs that might be subject to tariffs and are also less exposed to potential trade retaliation given they have less non-U.S. sales exposure than goods firms,” Kostin wrote in a note.
He added that companies generating the highest proportion of their sales within the U.S. “should be relatively insulated from tariffs” versus those with high sales internationally. U.S. stocks with higher-than-averages sales to China underperformed against the S&P 500 by 455 basis points so far in the third quarter, according to the Goldman Sachs analysis.
But concerns over tariffs aside, select companies have side-stepped tensions China and found success with Chinese consumers. Costco (COST) on Wednesday opened its first warehouse store in China, with the opening ceremony met with traffic jams and throngs of people waiting to shop at the mega-store.
STOCKS: Pharma stocks rise after J&J ruling
Pharmacy stocks advanced after health conglomerate Johnson & Johnson was hit with a much smaller-than-expected fine by an Oklahoma judge, on account of the company’s involvement in the state’s opioid crisis.
The company’s stock ended more than 1% higher Tuesday, making it the best-performing component in the 30-stock Dow index.
J&J was ordered to pay the state $572 million, or only about 3% of the expected $17 billion in penalties the state had sought initially, for creating what Judge Thad Balkman ruled was a “public nuisance” through misleading opioid marketing and promotion that contributed to addiction and overdose. This had been the first-ever trial by a state attempting to penalize a pharmaceutical company for involvement in the opioid crisis. J&J said in a statement that it “is confident it has strong grounds to appeal this decision.”
While J&J still faced penalties as a result of the ruling, the investment community largely took the ruling as a sign that other companies facing similar liabilities relating to the opioid crisis would be left to pay smaller-than-expected fines. Shares of the S&P 500’s Pharmaceuticals ETF (XPH) and iShares Dow Jones U.S. Pharmaceutical index (IHE) – which each count J&J as a holding – rose in early trading before turning negative later in the session, tracking declines in the broader market.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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