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U.S. Equity Markets Sluggish on Lingering Trade Concerns

U.S. equity indexes retreated on Tuesday as investors returned from the long U.S. holiday week-end in a bearish mood. Driving the price action was trade tensions as the U.S. moves to resolve lingering issues with Canada, the European Union and China.

At the cash market close, the benchmark S&P 500 Index settled at 2896.72, down 4.80 or -0.17%. The blue chip Dow Jones Industrial Average finished at 25952.48, down 12.34 or -0.05% and the tech-driven NASDAQ Composite settled at 8093.01, down 16.53 or -0.20%.

The S&P 500 Index was pressured by weakness in telecom and real estate shares. Weakness in Nike and Verizon was a drag on the Dow Jones Industrial Average. Facebook shares helped limit gains in the NASDAQ Composite, but the index was supported by gains in Amazon.

Lingering Trade Issues

Last week, the U.S. and Canada failed to reach a new trade agreement, but talks are expected to resume on Wednesday. Nonetheless, concerns were raised over the week-end when President Trump tweeted over the week-end that there was no “political necessity to keep Canada in the new NAFTA deal.”

Furthermore, Trump also said that Congress shouldn’t intervene in the talks, and claimed that if it did, he would “simply terminate NAFTA entirely.”

Last week, Trump also criticized a new trade proposal from the European Union as well as warning that he would consider removing the U.S. from the World Trade Organization (WTO) if it doesn’t “shape up.”

The key market moving event later this week could be the placing of new tariffs on China from the U.S. A report from Bloomberg last week suggested the U.S. administration was on standby to inflict additional levies on $200 billion worth of Chinese goods as soon as this week.

U.S. Economic Reports

ISM Manufacturing PMI came in much better than expected at 61.3, versus a 57.6 forecast. Construction Spending was lower than expected at 0.1%, versus 0.5%. ISM Manufacturing Prices came in at 72.1, below the 74.0 forecast. IBD/TIPP economic Optimism was 55.7, versus a 57.2 estimate.

U.S. manufacturing activity accelerated to more than a 14-year high in August, boosted by a surge in new orders, but growing concerns over rising raw material costs as a result of import tariffs could restrain further growth.

The ISM described demand as remaining “robust,” but cautioned that “the nation’s employment resources and supply chains continue to struggle,”

According to the ISM, respondents to the survey were “again overwhelmingly concerned about tariff-related activity, including how reciprocal tariffs will impact company revenue and current manufacturing locations.”

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James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.