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U.S. Stocks Fall as Gary Cohn's Exit Adds to Trade Concerns

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03/07/2018 | 06:49pm CEST
By Riva Gold and Amrith Ramkumar 
   -- U.S. stocks fall amid trade worries 
   -- Government bonds rise 
   -- European stocks little changed after Asian indexes drop 

U.S. stocks fell Wednesday after economic adviser Gary Cohn's resignation from the White House raised new concerns about the impact of steel and aluminum tariffs on global growth.

Some investors saw Mr. Cohn's resignation as a sign that President Donald Trump was pushing forward with the tariffs he announced last week and were worried that protectionist trade policies could spread. Treasury Secretary Steven Mnuchin said in an interview with Fox Business that the White House will move forward with the tariffs.

Global trade disruptions could lead to ripple effects for a wide range of commodities and products, some fear, leading to higher costs for companies and consumers and ultimately slower economic growth.

"You will have a disruption in growth if you get to the point where everybody is saying, 'We have no other option but to hit back,'" said Dec Mullarkey, a managing director on the investment research team at Sun Life Investment Management.

"There's no question it's going to create volatility, but I think a lot has to play out in the next several weeks," he added.

The Dow Jones Industrial Average fell 318 points, or 1.3%, to 2567, and it was on track for their fourth drop of at least 1% in the past seven sessions. The S&P 500 declined 0.9%, and the Nasdaq Composite slipped 0.6%.

Stocks rose to start the week after prominent members of the Republican party pushed back against the tariffs, fueling bets that a widespread trade war was unlikely. A number of companies and other countries have also voiced concerns in recent days with full details still yet to be announced and uncertainty still surrounding negotiations over the North American Free Trade Agreement.

On Wednesday, the European Union urged Mr. Trump to rethink his planned tariffs, challenging U.S. national security claims and threatening to strike back unless the White House reverses course.

Shares of industrial firms that would be most affected by higher commodity costs were among the worst performers Wednesday. Heavy machinery maker Caterpillar fell 2.8%, weighing on the Dow. The S&P 500 industrials sector dropped 1.1%.

U.S. bank stocks were another area of concern for investors. Shares of the biggest U.S. banks traded lower Wednesday as markets fretted over Mr. Cohn's departure and its implications for trade, the economy and regulation. The KBW Nasdaq Bank Index declined 1.1%.

"Gary Cohn is well-regarded in the investment community and we are likely to see some short-term negative sentiment" from his departure, said Robert Gillam, chief executive at McKinley Capital.

Some haven assets rose Wednesday, with the yield on the benchmark 10-year U.S. Treasury note edging down to 2.853%, according to Tradeweb, from 2.877% Tuesday. Yields fall as prices rise.

Currencies of countries that trade heavily with the U.S. mostly fell. The WSJ Dollar Index, which tracks the U.S. currency against a basket of 16 others, was recently up 0.1%.

Elsewhere, the Stoxx Europe 600 swung between small gains and losses before closing up 0.4%, as gains in technology firms offset declines in the auto and basic resources sectors.

Some investors said they expect the market to recover and the global economy to remain strong, as long as an all-out trade war is avoided.

"In general, it should be a good period [for markets], but it's probably going to ping pong between these bouts of low volatility and great asset performance and short, sharp corrections that push people back on their heels when something crops up on the trade front" or elsewhere, said Robert Tipp, chief investment strategist at PGIM Fixed Income.

Japan's Nikkei Stock Average ended the session down 0.8%, with Kobe Steel and Showa Denko, which manufactures chemical products and industrial materials, among the biggest decliners. Japan hasn't responded to Mr. Trump's tariffs, but some analysts think the country would push back if the U.S. targets a more important sector such as the auto industry.

Hong Kong's Hang Seng closed down 1%, and South Korea's Kospi fell 0.4%, as optimism about North Korea being open to talking about giving up its nuclear weapons was offset by worries about global trade.

-- Gregor Stuart Hunter and Emily Glazer contributed to this article.

Write to Riva Gold at riva.gold@wsj.com and Amrith Ramkumar at amrith.ramkumar@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
DJ INDUSTRIAL 0.75% 26447.67 Delayed Quote.6.18%
HANG SENG 1.20% 27417.71 Real-time Quote.-9.49%
KOSPI COMPOSITE INDEX -0.03% 2308.1 Real-time Quote.-6.18%
NASDAQ 100 -0.42% 7463.5865 Delayed Quote.17.17%
NASDAQ COMP. -0.34% 7929.5465 Delayed Quote.15.25%
NIKKEI 225 1.08% 23672.52 Real-time Quote.2.88%
S&P 500 0.54% 2904.31 Real-time Quote.8.05%
US DOLLAR INDEX 0.15% 94.64 End-of-day quote.3.03%
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