Tech Stocks and China Tensions Weigh on the Markets

Tech Stocks and China Tensions Weigh on the Markets

The Nasdaq has been dragged down by a fall in technology shares, while geo-political tensions between the US and China have given investors room to pause, as reports China seized an unmanned US vessel sent oil higher, bonds yields and the dollar lower, and rattled equities.    

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On a day when the only semblance of drama was whether the Dow Jones Industrial Average would get to 20,000, traders were jarred from their seats as geopolitical tensions surfaced anew. The headlines spurred a rare bout of volatility in markets that have gone close to straight up since Donald Trump’s election, complicating the S&P 500 Index’s quest for its ninth gain in 11 days. The tensions have sent oil higher, bonds yields and the dollar lower, and rattled equities.

Tensions between the US and China have risen in recent weeks after President-elect Donald Trump broke a decades-old policy of not formally recognizing Taiwan’s government and suggested the long-standing OneChina policy can be used a bargaining chip in trade talks. China views Taiwan as a renegade province and further recognition by the US would likely elicit an immediate and forceful response and endanger a two-way trade relationship that reached $627 billion in 2015.

Near 1:00PM ET the Dow Jones Industrial average was up 12.23 points, or 0.06%, at 19,864.47. The S&P 500 was down 1.19 points, or 0.05%, at 2,260.84. The Nasdaq Composite was down 5.88 points, or 0.11%, at 5,450.98.

There are, however, also some growing concerns that the "Trump rally" may have gone too far too soon, and that valuations are stretched. The S&P 500 is trading at 17.9 times forward 12-month earnings, above the 10-year median of 14.7 times, according to StarMine data.

The yield on 10-year Treasuries fell as much as five basis points and gold futures spiked as investors sought safety assets. Crude jumped more than 1 percent, briefly topping $52 a barrel in New York, as a rise in maritime tensions could crimp deliveries. US equities erased 0.4 percent from session highs, and the dollar retreated versus its major peers. Soybean futures erased losses on the news.

The Federal Reserve, which raised interest rates for the second time in nearly a decade on Wednesday, sees a faster pace of rate hikes in 2017, partly due to the potential economic benefits from President-elect Donald Trump's policies. This too may be affecting the long term view of investors.

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