U.S. Stocks Close Lower On Steep Drop By Intel, Rising U.S.-China Tensions

Stocks fluctuated after an initial move to the downside but maintained a negative bias throughout the trading session on Friday. With the drop on the day, the major averages extended the sharp pullback seen in afternoon trading on Thursday.

The major averages finished the day off their lows of the session but still firmly in negative territory. The Dow slid 182.44 points or 0.7 percent to 26,469.89, the Nasdaq slumped 98.24 points or 0.9 percent to 10,363.18 and the S&P 500 fell 20.03 points or 0.6 percent to 3,215.63.

For the week, the tech-heavy Nasdaq tumbled by 1.3 percent, the Dow sank by 0.8 percent and the S&P 500 dipped by 0.3 percent.

A sell-off by shares of Intel (INTC) weighed on the markets, with the semiconductor giant and Dow component plunging by 16.2 percent to a four-month closing low.

Intel came under pressure after reporting better than expected second quarter results but warning of further delays in production of its next-generation chips.

The weakness on Wall Street also came amid concerns about rising tensions between the U.S. and China after Beijing decided to revoke the license for the establishment and operation of the U.S. Consulate General in Chengdu.

The move comes just days after the U.S. government ordered China to close its consulate in Houston, Texas, amid accusations Chinese diplomats aided in economic espionage and the attempted theft of scientific research.

A statement from China’s Foreign Ministry claimed the move by the U.S. violated international law and seriously damaged U.S.-China relations and called the closure of the U.S. consulate in Chengdu a “legitimate and necessary response to the unreasonable actions of the United States.”

“The current situation between China and the United States is something China does not want to see, and the responsibility rests entirely with the United States,” the statement said, urging the U.S. to immediately revoke the “erroneous decision.”

Worries about the continued spike in coronavirus cases also generated some negative sentiment, with the U.S. reporting 68,663 new cases on Thursday, according to data compiled by Johns Hopkins University.

According to analysis by CNBC, daily new cases are rising, on average, by at least 5 percent in 25 states and the District of Columbia as of Thursday.

On the U.S. economic front, the Commerce Department released a report showing new home sales in the U.S. continued to spike in the month of June.

The Commerce Department said new home sales soared by 13.8 percent to an annual rate of 776,000 in June after skyrocketing by 19.4 percent to a revised rate of 682,000 in May.

Economists had expected new home sales to jump 3.6 percent to a rate of 700,000 from the 676,000 originally reported for the previous month.

With the much bigger than expected increase, new home sales continued to rebound after falling to the lowest annual rate in well over a year in April and reached their highest level since July of 2007.

Sector News

Computer hardware stocks turned in some of the market’s worst performances on the day, dragging the NYSE Arca Computer Hardware Index down by 2.9 percent. The index reached a five-month intraday high on Thursday before pulling back sharply.

Substantial weakness was also visible among airline stocks, as reflected by the 2.2 percent nosedive by the NYSE Arca Airline Index.

Biotechnology, semiconductor, and networking stocks also came under considerable selling pressure, reflecting weakness in the broader technology sector.

On the other hand, gold stocks moved sharply higher over the course of the session, driving the NYSE Arca Gold Bugs Index up by 3.4 percent. With the jump, the index ended the day at a seven-year closing high.

The rally by gold stocks came as the price of gold for August delivery climbed $7.50 to a new record closing high of $1,897.50 an ounce.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved notably lower during trading on Friday, with the Japanese markets still closed for a holiday. China’s Shanghai Composite Index plummeted by 3.9 percent, while Hong Kong’s Hang Seng Index sank by 2.2 percent.

The major European markets also showed significant moves to the downside on the day. While the German DAX Index tumbled by 2 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index slumped by 1.5 percent and 1.4 percent, respectively.

In the bond market, treasuries showed a lack of direction before ending the session little changed. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by less than a basis point to 0.589 percent.

Looking Ahead

The spotlight may shift to the Federal Reserve’s monetary policy meeting next week, although the central bank is widely expected to leave interest rates unchanged.

Since rates are already at near-zero levels, traders may look to the Fed’s accompanying statement for clues about future plans to provide additional economic stimulus.

Traders are also likely to keep an eye on reports on durable goods orders, consumer confidence, pending home sales and personal income and spending as well as the first reading on second quarter GDP.

Earnings news will also continue to attract attention, with McDonald’s (MCD), Pfizer (PFE), Boeing (BA), General Electric (GE), Facebook (FB), Procter & Gamble (PG), Amazon (AMZN), Exxon Mobil (XOM), and Chevron (CVX) among a slew of companies due to report their quarterly results.

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