Stocks dip amid U.S.-China trade tensions, still up big for the week

Stocks dipped on Friday as tensions between China and the U.S. offset the increasing optimism around a potential coronavirus vaccine.

The Dow Jones Industrial Average fell 85 points, or 0.4%. The S&P 500 traded 0.1% lower while the Nasdaq Composite hovered along the flatline.

Overnight, China released draft legislation over new national security measures on Hong Kong after last year’s burst of anti-government protests in the city. That law is expected to increase Beijing’s hold over Hong Kong. China also opted against setting a GDP target for 2020 as the coronavirus batters the second-largest economy in the world. 

That proposal was unveiled after the Senate passed a bill earlier in the week that would potentially delist Chinese stocks from U.S. exchanges.

Ed Mills, Washington policy analyst at Raymond James, said the bill is moving at “warp speed,” noting: “We believe there will be a significant push for the legislation to be taken up in the coming weeks, and we believe it is only a matter of time before this bill (or something similar) is signed into law.”

Still, the Dow was up about 3% week to date and was headed for its biggest one-week gain since the week of April 9. The S&P 500 has gained 2.9% this week while the Nasdaq Composite is up 3.2% in that time. The Russell 2000, which tracks small-cap stocks, has trounced the large-cap indexes this week with a 7.2% jump. 

Those weekly advances come amid optimism around the global economy reopening as well as rising hopes for a coronavirus vaccine.

“This week started off really strong and put us on a good trajectory,” said Matt Stucky equity portfolio manager at Northwestern Mutual. “There’s an increasing probability that something more permanent in nature is going to fix the problem, and that should be discounted in a positive way.”

News about a potential vaccine from Moderna sent equities flying earlier in the week, with the Dow surging more than 900 points on Monday. Moderna said all 45 participants in its vaccine trial had developed coronavirus antibodies.

On Friday, Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, told NPR that Moderna’s vaccine data looked “promising.” Moderna shares rose more than 2% on those comments. 

Facui later told CNBC’s “Halftime Report” he is “enthusiastic” about the economy reopening. 

“We can’t stay locked down for such a considerable period of time that you might do irreparable damage and have unintended consequences, including consequences for health,” said Fauci. “It’s for that reason that the guidelines have been put forth so that the cities and states can start to reenter an reopen.”

Retailers such as TJX and Gap are among the best-performing stocks this week, bolstered by optimism over states reopening their economies. TJX is up over 15% week to date while Gap advanced over 7%. Citigroup, JPMorgan Chase and Wells Fargo are also up more than 2% each this week. 

This week’s gains put the S&P 500 about 35% above an intraday low set on March 23. 

“The future remains uncertain, and thus, we are not confident in saying a second wave cannot happen — but the good news, there has yet to be a second wave in re-opened economies,” said Tom Lee, founder and head of research at Fundstrat Global Advisors, in a note. “We remain in the half-full camp and believe stocks offer pretty good risk/reward, even here.”

To be sure, a CNBC analysis using data from Johns Hopkins University shows that as U.S. states reopen, more than a third have seen new coronavirus cases rise.

President Donald Trump also said Thursday night “we are not closing our country” if a second wave of coronavirus infections hits the U.S. “We can put out the fires. Whether it is an ember or a flame, we are going to put it out. But we are not closing our country.”

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