Stocks slump as China hits back at US with new tariffs; Nasdaq in correction territory

U.S. stocks fell sharply on Wednesday, in the latest example of heavy day-to-day volatility being driven by concerns over the prospect of a trade war between China and the U.S.

The decline pushed the S&P 500 back below a key technical level while the Nasdaq could close in correction territory for the first time in about two years.

What are the main benchmarks doing?

The Dow Jones Industrial Average DJIA, -1.32% fell 368 points, or 1.6%, to 23,661. The S&P 500 index SPX, -0.92% lost 28 points to 2,587, a drop of 1% that took it back below its 200-day moving average, a key gauge for long-term momentum trends. The Nasdaq Composite Index COMP, -1.07% fell 1.1% to 6,870, returning to negative territory for the year. If the Nasdaq closes below 6,829.49, it will end in correction territory for the first time since February 2016; at its low of the session, the Nasdaq traded below that level.

The day’s losses were broad, with nearly all 30 Dow components and all 11 S&P 500 industry groups in negative territory.

Equities have been extremely volatile of late. Major indexes all rose by more than 1% on Tuesday, rebounding partially from a sharp selloff on Monday. So far this year, the S&P 500 has had three times as many sessions with a 1% move than in all of 2017.

What’s driving markets?

Worries are persisting about a potential global trade war, helped by China’s response to the U.S. government’s move. Signaling a tit-for-tat approach, China’s Ministry of Commerce said the tariffs would affect $50 billion of U.S. goods.

Chinese officials said they plan to impose tariffs of up to 25% on 106 American products, including soybeans and airplanes. That comes after the Trump administration on Tuesday gave details on the $50 billion of Chinese goods that it plans to hit with 25% tariffs unless Beijing makes major trade and investment concessions soon.

The retaliation was the latest sign that trade conflicts between the U.S. and major trading partners are escalating, something analysts have cited as a primary risk for equities this year.

See:5 charts that show how China’s response to U.S. tariffs is rattling markets

And read:U.S. soybeans would be China’s biggest weapon in a trade war

Check out:How a ‘trade skirmish’ could become a global ‘trade war’

What are strategists saying?

“While corporate fundamentals remain strong, markets are forward looking and the broadening scope of US-China trade tensions is seen as a growing threat to global growth and corporate earnings, forcing equity valuations lower,” said Alec Young, managing director of global markets research at FTSE Russell.

Albert Brenner, director of asset allocation strategy at People’s United Advisors, said that “to the extent that the prospects of a trade war increase, there is a bigger impact not just on the U.S. economy, but also the global one. Right now the impact of the announced Chinese tariffs are small in the scope of all U.S. exports, but it isn’t just the immediate news but what it portends to the future. We can’t easily suss out the economic impact of how big this could get.”

Which stocks are in focus?

Manufacturers with significant exposure to China were showing big losses, with aerospace giant Boeing Co.’s stock BA, -3.43% down 3.9%, while heavy-machinery maker Caterpillar Inc.CAT, -2.08% fell 2.8%. 3M Co.MMM, -1.35% fell 1.9% and General Electric Co. GE, -0.95% was down 1.3%.

China’s Commerce Ministry published a list of major American exports that were being targeted, and it included airplanes, cars and chemicals, along with soybeans SK8, -2.48% sorghum and beef.

Technology stocks are staying in focus, after driving recent losses. Facebook Inc.FB, -2.74% which recently tumbled into bear-market territory—a 20% drop from a peak—amid a scandal over how it has managed user data, could remain volatile after lawmakers said that Chief Executive Officer Mark Zuckerberg would testify before the House Energy and Commerce Committee on April 11 about the company’s use and protection of user data. The stock fell 1.9% on Wednesday.

Shares of e-commerce giant Amazon.com Inc.AMZN, -1.55% fell 1.4%. The company, which often moves on tech issues but is classified as a consumer-discretionary name, has been under pressure from President Donald Trump’s attacks on it, though analysts said it was unlikely Trump’s attacks would result in a meaningfully different regulatory environment.

Tesla Inc. shares TSLA, -1.45% dropped .8%. Late Tuesday, the maker of electric cars reported first-quarter production and delivery numbers that missed expectations, but said it would not need to raise more money this year. Analysts noted the company also said this in early 2016, shortly before it did raise several billion dollars.

Music-streaming service Spotify Technology SASPOT, -2.74% looks set to stay in the spotlight in its second day of trading on the New York Stock Exchange. The stock opened with a bang Tuesday, but closed on a down note. Shares fell 2.1% on Wednesday.

CBS Corp.CBS, +0.40% slid 1% after the media giant reportedly made an offer to acquire Paramount Pictures parent Viacom Inc.VIAB, +0.95% that was below Viacom’s current market value of $12.5 billion. Both CBS and Viacom are controlled by media mogul Sumner Redstone’s holding company. Viacom shares rose 1%.

Shares in home builder Lennar Corp.LEN, +6.75% rose 3.6% following better-than-expected earnings, while used-car seller CarMax Inc.KMX, +0.63% fell 1.5% after its results.

Proteostasis Therapeutics Inc.PTI, +11.91% climbed 5.6% after the Food and Drug Administration gave a “fast track” designation to its cystic fibrosis treatment.

Which economic reports are on tap?

ADP’s report on private-sector employment showed 241,000 jobs added in March, far more than had been expected. The news is a positive read on the labor market ahead of Friday’s closely watched government data on nonfarm payrolls.

Markit’s March report on services came in at 54, a drop from the previous reading of 55.9, while he Institute for Supply Management was at 58.8, with economists polled by MarketWatch forecasting a March reading of 59.0%.

Meanwhile, February factory orders data rose 1.2%, with 1.7% growth expected.

Check out:MarketWatch’s Economic Calendar

On the Federal Reserve front, minutes from the central bank’s March 20-21 meeting are due for release at 2 p.m. Eastern.

James Bullard, the president of the St. Louis Fed, said there was no reason to raise interest rates further.

Cleveland Fed President Loretta Mester is schedule to talk about diversity in economics at 11 a.m. Eastern at Central State University in Wilberforce, Ohio.