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Stocks Fall on Renewed U.S.-China Tensions, Buffett Comments

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05/04/2020 | 11:55am EDT

By Paul Vigna, Joanne Chiu and Anna Hirtenstein

U.S. stocks fell Monday following comments from Warren Buffett over the weekend, where the world's most famous investor said he sold his airlines holdings and talked candidly about his concerns in the market.

The Dow Jones Industrial fell 215 points, or 0.9%. The S&P 500 lost 0.5%, but the Nasdaq Composite was up 0.4%.

The selling on Monday continues a recent trend. After the market rallied for parts of April, the gains have stalled over the past two weeks. The stall highlighting the market's biggest issue: whether or not the market hit a lasting bottom in March.

Not even Mr. Buffett knows the answer. Over the weekend, the chief executive of Berkshire Hathaway Inc. said that he sold all his stock in four airlines. While he sounded optimistic notes and waxed about "American magic," he also conceded that he didn't see any attractive investments right now.

"For him to come out and say 'I don't see any opportunities' is a big thing," said Greg Harmon, founder and president of Dragonfly Capital. "It's clear to him that it's not time for everything to start going up."

The airlines Mr. Buffett sold were all hammered in early trading. Delta Air Lines declined 8.7%, United Airlines Holdings slid 8.8% and American Airlines Group was down 9.7%. Southwest Airlines also slipped 7.5%.

Investors were also nervous after a seeming renewal of antagonism between the U.S. and China.

The Trump administration stepped up assertions that the new coronavirus originated at a laboratory in the Chinese city of Wuhan, with Secretary of State Mike Pompeo saying Sunday that he has seen "enormous evidence" for this. The White House will release a "conclusive" report on the topic, according to President Trump.

More than the accusations themselves, investors are taking the increase in tensions seriously, said Sebastien Galy, a macro strategist at Nordea Asset Management.

"The last escalation was pretty detrimental for equity markets," he said, referring to the selloff in mid-2019 at the height of the U.S.-China trade war. "A de-escalation process can take weeks."

That just adds one more headache for investors, compounding what is already one of the murkiest markets in decades.

"I've been doing this for 50 years, and this is unique for me," said Robert Colby, chairman of Robert W. Colby Asset Management.

The rally off the March lows looked more like a short-term rally than a new uptrend, he said, and he hasn't yet seen anything from a fundamental or technical standpoint to change his mind.

"I respect Uncle Warren, what he said is entirely reasonable," Mr. Colby said. "He's keeping his cash hoard, and so am I."

Tyson Foods fell 8.3% after releasing an earnings report that showed its quarterly sales and earnings per share missed estimates. The meat processing giant said the coronavirus has impacted its productivity and raised its costs. Earnings are also due Monday from insurer American International Group after the market closes.

Kerry Craig, global-market strategist at J.P. Morgan Asset Management, said a deteriorating earnings outlook had yet to be reflected in analyst consensus forecasts, which for the U.S. market for 2021 suggest higher earnings than in 2019.

"It's quite an optimistic scenario in our view," he said. Some investors were happy to trim positions after a strong rally since the market troughed in March, he added.

In Europe, the pan-continental Stoxx Europe 600 fell 2.3%, playing catch-up after most European markets were closed Friday for the May 1 holiday.

Benchmarks in Asia declined, with Hong Kong's Hang Seng Index, which was closed for the previous two sessions, playing catch-up to lose 4.2%. South Korea's Kospi Composite fell more than 2.5%. Markets in mainland China and Japan were closed for holidays.

U.S. crude-oil futures for delivery in June rose 0.7% to $19.91 a barrel, while Brent crude, the global benchmark, declined 0.2% to $26.318.

The dollar strengthened, with the ICE U.S. dollar index rising 0.4% as investors sought safety in safe-haven assets. The yield on benchmark 10-year Treasury notes was flat at 0.641%. Yields fall as prices rise. Gold rose 0.5% to trade at $1,710.50 an ounce.

Investors will have plenty of economic data to scrutinize this week, including trade figures from China due Thursday and Friday's U.S. employment report, which is likely to show heavy job losses and skyrocketing unemployment for April.

A release of purchasing managers indexes Monday for several Western European countries showed that coronavirus lockdowns sent manufacturing activity to all-time lows in Germany, France, Spain and Italy in April.

France's stock market was among the biggest losers in the region Monday, with its CAC 40 index declining 4%, the most in over a month. It was weighed down by luxury, oil and industrial stocks that took a beating on rising concerns about Chinese demand. LVMH, which owns brands such as fashion label Louis Vuitton and Moet champagne, slumped 4.3%.

Shares in industrial group Thyssenkrupp plunged 13.4% after an internal letter to staff warned it will have less cash left over from the sale of its elevator business than previously thought as the pandemic is eating into its remaining businesses. Thyssenkrupp agreed to sell its elevator business for EUR17.2 billion ($18.8 billion) in February, a deal that is expected to close this year.

Write to Paul Vigna at paul.vigna@wsj.com, Joanne Chiu at joanne.chiu@wsj.com and Anna Hirtenstein at anna.hirtenstein@wsj.com

 

Stocks mentioned in the article
ChangeLast1st jan.
BERKSHIRE HATHAWAY INC. 0.53% 278640 Delayed Quote.-18.42%
CAC 40 -1.59% 4695.44 Real-time Quote.-20.19%
DJ INDUSTRIAL -0.07% 25383.11 Delayed Quote.-10.48%
EURO / US DOLLAR (EUR/USD) 0.22% 1.10994 Delayed Quote.-1.74%
HANG SENG -0.60% 22977.4 Real-time Quote.-18.00%
KOSPI COMPOSITE INDEX 0.29% 2038.37 Real-time Quote.-7.57%
LETS HOLDINGS GROUP CO., LTD. 4.01% 12.45 End-of-day quote.106.13%
NASDAQ 100 1.47% 9555.524843 Delayed Quote.7.83%
NASDAQ COMP. 1.29% 9489.872484 Delayed Quote.4.42%
S&P 500 0.48% 3044.31 Delayed Quote.-6.22%
WORLD CO., LTD. -3.03% 1567 End-of-day quote.-41.77%
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