Dow Jones futures fell sharply Tuesday morning, along with S&P 500 futures and Nasdaq futures after markets were closed Monday for the Labor Day holiday. On Sunday, President Donald Trump went ahead with new China tariffs on $110 billion worth of imports, including some Apple (AAPL) products for the first time. Beijing retaliated, further escalating the China trade war.
XChina vowed to support growth and liquidity, boosting the Shanghai composite on Monday. However, the U.S. and China reportedly haven't agreed on a date or agenda for new trade talks.
China trade optimism spurred last week's stock market rally, even as new Trump tariffs loomed. Many top stocks finished off bases, including Apple stock, fellow Dow Jones stock Microsoft (MSFT) and Starbucks (SBUX).
Meanwhile, Coupa Software (COUP) and recent IPO Zoom Video Communications (ZM) are among software stocks near buy points with earnings due this week, as software and IPO stocks.
Dow Jones Futures Today
Dow Jones futures sank 0.9% vs. fair value. S&P 500 futures retreated 0.85%. Nasdaq 100 futures fell 1%.
Keep in mind that action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session. Dow Jones futures have been volatile in recent weeks, as breaking China trade news overnight up-ends market expectations.
The Treasury yield curve is still inverted, but by about 1 basis point vs. as much as 6 basis points last week.
Crude oil futures and copper futures fell significantly.
Asian markets were narrowly mixed Tuesday, with the Shanghai composite up 0.2%. On Monday, the Shanghai composite rose 1.3% as Beijing pledged to support "reasonably ample" liquidity and "reasonable growth." Manufacturing surveys for China were mixed over the weekend. A government index showed a deeper contraction while the Caixin index unexpectedly showed growth.
European markets were generally lower Tuesday after rising Monday.
U.K. Prime Minister Boris Johnson has threatened a snap election Oct. 14 if Parliament votes Tuesday to force him to delay a no-deal Brexit until Jan. 31.
China Trade War Escalates, With More To Come
The new 15% Trump tariffs affect about $110 billion in imports from China. Many are consumer goods for the first time, including the Apple Watch and Apple AirPods along with many other electronics, footwear and apparel.
Beijing implemented its own retaliatory tariffs as promised. That includes higher tariffs on many U.S. agricultural goods as well as crude oil.
On Oct. 1, Trump says he'll raise 25% tariffs on an earlier $250 billion worth of imports to 30%. In mid-December, 15% Trump tariffs will kick in for the Apple iPhone, other cell phones, laptop computers and toys.
China plans further retaliation in December, including reimposing 25% tariffs on American-made cars.
Bottom line: President Trump and Chinese President Xi Jinping are on a path to higher tariffs, with each side now escalating the China trade war in retaliation for the other's retaliation. That will put more pressure on the global economy and financial markets.
Current Stock Market Rally
The current stock market rally got a much-needed boost last week. The Dow Jones industrial average climbed 3%, the S&P 500 index 2.8% and the Nasdaq composite 2.7%.
Growth stocks had a less-impressive performance. Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.35% while the iShares Expanded Tech-Software Sector ETF (IGV) climbed just 1.2%, even with Microsoft stock doing so well. Many top software names struggled.
The VanEck Vectors Semiconductor ETF (SMH) jumped 4.3%, though many of those were chip stocks well off highs.
Positive China trade war comments from President Trump and Chinese officials provided a catalyst for the stock market rally. But the Dow and other key indexes also may have been due for a bounce after four straight weeks of stock market losses.
The Dow Jones today is still below its 50-day moving average, along with the S&P 500 index and Nasdaq composite. That's been an area of resistance for the past several weeks, with the major indexes pulling back from that key level on Friday. It's hard to see how the stock market can rally powerfully above the 50-day, let alone record highs, with the China trade war escalating and no deal in sight.
Top Stocks Near Buy Points
Apple, Microsoft and Starbucks stock all have flat bases, which are especially bullish in choppy markets. But if the stock market rally is stymied by Trump tariffs, these iconic American companies will struggle to move past buy points.
Apple Stock
Apple stock rose 2.9% last week to 208.49 last week. It now has a new buy point of 221.47 after a failed cup-with-handle breakout.
Apple is now directly affected by the Trump tariffs. Meanwhile, the China trade war is taking a toll on Chinese consumers, who might decline to buy a pricey handset from U.S.-based Apple.
Apple stock fell about 1% before Tuesday's open.
Microsoft Stock
Microsoft stock rose 3.3% last week to 137.79, reclaiming its 50-day line. The software giant has a new flat base, part of a base-on-base formation, with a 141.78 entry. Microsoft stock fell nearly 1% before Tuesday's open.
Apple and Microsoft are among several Dow Jones stocks forging new bases.
Starbucks Stock
Starbucks stock rose 2% last week to 96.56. That's about 3% below a 99.82 buy point. Unlike Microsoft stock, Starbucks already is comfortably above its 50-day line. Like Apple, Starbucks has heavy exposure to the China market.
Coupa Software Stock
Shares actually fell 0.9% last week to 138.93. Coupa Software stock is in an ascending base with a 148.10 buy point, finding support at the 50-day line.
Coupa Software earnings are due late Tuesday. Analysts expect a loss of 10 cents a share vs. a 5-cent profit a year earlier. The business spending management software maker has beaten views by at least five cents in each of the last six quarters. Revenue should rise 38% to $85.4 million.
Zoom Video Stock
Zoom Video stock edged up 0.1% to 91.69, continuing to hit 50-day line resistance. Shares are well off a 104.59 cup-with-handle buy point. Zoom Video stock came public at $36 a share.
In addition to Coupa and Zoom Video earnings, recent IPOs CrowdStrike Holdings (CRWD), Slack Technologies (WORK) are on tap. So are MongoDB (MDB) and Palo Alto Networks (PANW). These results may offer insights into whether software and IPO stocks can regain their market leadership.
While the NYSE and Nasdaq were closed for Labor Day, overseas markets are not. That means Dow Jones futures will react to two full days of Asian trading as well as two European market opens before the NYSE and Nasdaq reopen Tuesday morning.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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