US Stock Likely To Open Lower As US-China Tariff War Continues: 'Valuations Are Now Looking More Compelling,' Says Expert
U.S. stock futures declined on Wednesday following a muted day of trading on Tuesday. Futures of major benchmark indices were lower in premarket.
The Donald Trump administration levied a 245% tariff on China late Tuesday. “China now faces up to a 245% tariff on imports to the United States as a result of its retaliatory actions,” stated a White House fact sheet.
Meanwhile, the new U.S. export restrictions halting the shipments of Nvidia Corp.‘s (NASDAQ:NVDA) H20 graphics processing units to China were announced. The announcement comes after the U.S. government informed the company on April 9 that it would now require a license to export those chips.
The 10-year Treasury bond yielded 4.31% and the two-year bond was at 3.81%. The CME Group's FedWatch tool’s projections show markets pricing a 79.9% likelihood of the Federal Reserve keeping the current interest rates unchanged in its May meeting.
| Futures | Change (+/-) |
| Dow Jones | -0.07% |
| S&P 500 | -0.44% |
| Nasdaq 100 | -1.08% |
| Russell 2000 | -0.35% |
The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, fell in premarket on Wednesday. The SPY was down 0.67% to $534.02, while the QQQ declined 1.27% to $452.17, according to Benzinga Pro data.
Cues From Last Session:
Weighing on U.S. stocks Tuesday, the consumer discretionary, health care, and consumer staples sectors saw the biggest declines.
Bucking the trend, however, information technology and real estate stocks closed higher.
The market moves came as Citigroup Inc. (NYSE:C) and Bank of America Corp. (NYSE:BAC) reported better-than-expected first-quarter earnings, while economic data showed a rise in the NY Empire State Manufacturing Index and flat export prices alongside a slight drop in import prices for March.
The Dow closed Tuesday 10.44% below its 52-week peak of 45,073.63. The S&P 500 ended 12.21% off its 6,147.43 high, and the Nasdaq 100 was 15.27% below its 22,222.61 record.
| Index | Performance (+/-) | Value |
| Nasdaq Composite | -0.049% | 16,823.17 |
| S&P 500 | -0.17% | 5,396.63 |
| Dow Jones | -0.38% | 40,368.96 |
| Russell 2000 | 0.11% | 1,882.92 |
Insights From Analysts:
According to Mona Mahajan of Edward Jones, the stock valuations were not stretched anymore. “While market returns have been negative this year, the upside is that valuations are now looking more compelling and are no longer stretched, which was a concern coming into this year.”
She highlighted that all major indexes were trading at or below their 10-year historical forward price-to-earnings multiples, potentially setting the stage for improved long-term returns.
The S&P 500 forward multiple was around 18 times next year’s earnings forecast, down from a recent high of 22.7 times, while the Nasdaq forward multiple was about 21 times, down from its recent high of 30 times.
“In our view, the spike in volatility, a reset in valuations, and signs that the worst-case scenario in the trade war appears to be averted suggest that stocks may find some support and try to carve out a bottom. Risks have risen, but a recession is not inevitable in our view, and stocks appear to have already priced in a significant degree of bad outcomes,” she added.
Jason Goepfert of White Oak Consultancy LLC noted a historical pattern: whenever the VIX fear index drops from above 50 to the 30 level, the S&P 500 has historically achieved 100% positive gains by year-end.
However, he points out that in the most recent such cycle in May 2020, the S&P 500’s return after a year was 42.96%. Goepfert’s analysis of similar cycles in 2009, 2002, and 1988 also reveals a short-term median loss of 0.7% for the S&P 500 in the week following the VIX’s drop to 30.
According to an X post by Charlie Bilello of Creative Planning, historical data since 1990 showed that the S&P 500 has delivered an average return of 35% in the year following a VIX close above 50, and 129% over the subsequent five years.
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Upcoming Economic Data
Here’s what investors will keep an eye on Wednesday:
- March’s U.S. retail sales will be out by 8:30 a.m. ET.
- Industrial production and capacity utilization data for March will be announced at 9:15 a.m. ET.
- Business inventories for February and the home builder confidence index for April will be out by 10:00 a.m. ET.
- Cleveland Fed President Beth Hammack will speak at noon.
Stocks In Focus:
- Abbott Laboratories (NYSE:ABT) rose 0.74% in premarket on Wednesday as it is expected to report earnings before the opening bell. Analysts expect a quarterly earnings of $1.07 per share on revenue of $10.40 billion.
- Travelers Companies Inc. (NYSE:TRV) was up 0.076% as Wall Street expects it to report earnings of 80 cents per share on revenue of $10.82 billion before the opening bell.
- Progressive Corp. (NYSE:PGR) fell 0.01% as it is expected to report earnings before the opening bell. Analysts expect a quarterly earnings of $4.81 per share on revenue of $21.63 billion.
- ASML Holding NV (NASDAQ:ASML) dropped 4.2% despite beating earnings estimates as its revenue and EPS fell on a sequential basis.
- J B Hunt Transport Services Inc. (NASDAQ:JBHT) dropped 6.28% after reporting a 7.6% decline in profit for the first quarter. The company posted quarterly revenue of $2.92 billion, compared to market estimates of $2.90 billion.
- iCAD Inc. (NASDAQ:ICAD) surged 72.02% and Radnet Inc. (NASDAQ:RDNT) fell 2.03% after they announced a definitive all-stock merger agreement where RadNet will acquire iCAD.
- La Rosa Holdings (NASDAQ:LRHC) jumped 119.16% after Nasdaq granted a 180-day extension, until October 6, 2025, to regain the $1.00 minimum bid price for continued listing under ‘LRHC’.
Commodities, Gold, And Global Equity Markets:
Crude oil futures were trading higher in the early New York session by 0.60% to hover around $61.70 per barrel.
Gold Spot US Dollar advanced 2.38% to hover around $3,304.35 per ounce. Its fresh record high stood at $3,318 per ounce. The U.S. Dollar Index spot was lower by 0.51% at the 99.7040 level.
Asian markets declined on Wednesday, except India's S&P BSE Sensex, China’s CSI 300 index. Hong Kong's Hang Seng, Japan's Nikkei 225, Australia's ASX 200, and South Korea's Kospi index ended lower. European markets were also mostly lower in early trade.
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