Hours before the meeting Thursday, the president said tariffs are an “excellent” alternative to a trade deal with China.
“This hardline turn by the U.S. was certainly a nasty (if not an entirely unpredictable) surprise for markets, which now may have to contend with heightened trade tensions for longer than anticipated,” Hannah Anderson, global market strategist at J.P. Morgan Asset Management, wrote in a note.
Stocks extended this week’s major sell-off on Thursday. The Dow Jones Industrial Average has fallen more than 650 points this week, while the S&P 500 has lost about 2.5% following the president’s Sunday tweet threatening tariff hikes.
On Monday, stocks shook off the president’s weekend tweet as a mere negotiation tactic. But tougher rhetoric by top U.S. trade representative Robert Lighthizer weighed on major indexes.
Markets again seesawed after the president said it was possible to get a trade deal with China this week. The Dow fell nearly 450 points at its intraday low on Thursday before cutting losses and ending the day just 138 points down.
“This episode highlights that trade tensions are not truly resolved until a deal is signed, sealed and delivered. Meanwhile, the extent of the selloff in the last few days is evidence that consensus market expectations can be wrong, especially when investors rely more on rumor than fact,” Anderson said.
The Cboe Volatility Index, a measure of the 30-day implied volatility of the S&P 500 that’s commonly known as Wall Street’s “fear gauge,” hit its highest level since Jan. 4 on Thursday.