By Avantika Chilkoti , Chong Koh Ping and Gunjan Banerji
U.S. stocks slipped Friday as investors braced for President
Trump's response to China's push for tighter security controls on
Hong Kong, which could reignite tensions between the world's two
The S&P 500 shed 0.5%. The Dow Jones Industrial Average fell
roughly 190 points, or about 0.7%. The Nasdaq Composite swung
between small gains and losses and was roughly unchanged.
Despite Friday's moves, major U.S. indexes are on track to end
the month with gains. The S&P 500 has added 3.5% in May, while
the Dow is up 3.5%. The Nasdaq has risen 5.3% this month.
The latest leg of the rally has been underpinned by shares of
companies that were considered the stock market's laggards just
weeks ago. This week, investors turned to shares of financial
companies and cooled toward the tech giants that had propelled the
market higher since its lows in March. Financial companies in the
S&P 500 have jumped 6.6% this week, while the
information-technology sector has inched up 0.1%.
To many observers, the climb in value stocks, which typically
trade at low multiples of their book values, was a sign that
investors are bracing for a broader economic recovery ahead.
"People keep rotating back and forth" between shares of
companies that will do well if the economy continues to reopen and
stocks that will thrive if people stay at home, said Ilya Feygin,
managing director at WallachBeth Capital. "That's the major issue
that people are grappling with."
But the sharp rally in stocks this week came to a stuttering
halt on Thursday after Mr. Trump said he would hold a news
conference on China on Friday.
China and the U.S. have been on a collision course in recent
days following Beijing's moves to clamp down on antigovernment
protesters in Hong Kong by imposing national-security laws on the
city. Fresh U.S. measures targeting trade and Chinese companies
could weigh on both economies at a time when they are already
struggling with the coronavirus pandemic, analysts said.
Mr. Trump could review Hong Kong's special status and leave the
city facing the same tariffs as mainland China, according to James
Athey, a portfolio manager at Aberdeen Standard Investments.
Washington has signaled this week that it may declare that it no
longer considers Hong Kong autonomous from Beijing.
"It would essentially change the business environment for U.S.
companies operating in Hong Kong, so that would be a significant
step and not one that we could discount," said Mr. Athey.
Mr. Trump could also take broader punitive measures against
China, he said. "He can saber rattle and increase tensions with
China directly, rescinding the phase-one deal and going back into
the playbook of 2019."
Any U.S. measures on trade or against Chinese companies, and any
Chinese retaliation, could have a greater impact than previous
actions taken before the new coronavirus battered both economies,
according to Colin Low, senior macro analyst at FSMOne.com in
The pan-continental Stoxx Europe 600 dropped 1.4%. Most major
Asia-Pacific equity benchmarks closed lower, while the Hong Kong
gauge lost 0.7%.
Bond markets reflected the erosion in investors' risk appetite.
The yield on the benchmark 10-year U.S. Treasury note edged down to
0.664%, according to Tradeweb, from 0.703% Thursday. Yields fall as
bond prices rise.
Shares of some individual companies recorded bigger moves. Dell
Technologies rallied 5.7%. The computer maker on Thursday said the
pandemic has boosted its business in certain sectors. Software
maker VMware, which is majority owned by Dell, climbed 7% after its
earnings topped Wall Street's expectations.
Salesforce.com dropped 4% after the business-software maker cut
its full-year earnings outlook.
Fresh data Friday showed that U.S. consumer spending fell by a
record 13.6% in April during coronavirus lockdowns. But there are
signs that purchasing is starting to pick up as states start to
reopen businesses and Americans return to work.
The University of Michigan's closely watched survey showed that
a measure of consumer sentiment rose in May from April.
Market sentiment could be shifting on a realization that
government support won't be enough to prevent job cuts, and that
reinfection rates could rise as people get back to work, according
to Mike Bell, global market strategist at JPMorgan Asset
"If you do see infection rates reaccelerate, then that could
call into question the existing market narrative that we're now on
the path of sustainable reopening," said Mr. Bell.
In the Asia-Pacific region, Japan's Nikkei 225 closed 0.2%
lower, while Australia's S&P/ASX 200 retreated 1.6%.
Write to Avantika Chilkoti at Avantika.Chilkoti@wsj.com, Chong
Koh Ping at email@example.com and Gunjan Banerji at
(END) Dow Jones Newswires
May 29, 2020 11:42 ET (15:42 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.