Trade Wars and Interest Rates Fuel Market Drop
The Dow Jones Industrial Average fell by more than 800 points, or around 3.1 percent today. The S&P 500 was off by 3.2 percent, putting it on pace for its first five-day losing streak in two years. The tech-heavy Nasdaq Composite was down by around 4 percent.
Companies earnings won’t be as good as they have been. The trade war with china is hurting corporate profits. If a company doesn’t earn as much as it used to, the stock price will go down.
1) imports from china:. The price of component parts that go into goods made here has just gone up between 10% to 25%. That means that the manufacturer has to raise the price of what he makes to cover his new cost. But he might not be able to sell as many units at the higher cost. Or he can eat the cost increase of the components and make less money than he used to make. Other things could occur as well. Maybe lay off workers to cut costs etc. to make up for the cost increase of the component parts he needs to make his products.
2) Exports to China: We sell,(or used to sell) $billions of soybeans and other grains to China. China is now going to South America to buy what they need. In China they used to buy oil and gas from us, but now they don’t. China was also the largest buyer of pork , now they aren’t.
Bonus #3: It appears that China will now let the value of their currency decline in value. That means that they could let their currency slide enough to make their products cheaper than ours even with the tariffs AND our products would then become twice as expensive, thereby ensuring that we would sell even less than we do now.
All of these things combined, means that American companies will not be as profitable as they used to be before the tariff thing started. If they aren’t as profitable, then the value of their stock will decline too.
Hope this helps.