Positive trade news will give Wall Street investors more confidence about the market, but “there’s more room to fall” without progress, Wharton School’s Jeremy Siegel said Friday.
The Dow Jones Industrial Average tanked more than 623 points during the session. The S&P 500 plummeted 2.59%, and the Nasdaq Composite dropped 3%. The major averages all turned in their first 4-week losing streak since May.
Siegel, a finance professor at the University of Pennsylvania’s business school, noted that the VIX sprang nearly 20% to about 20 points during the trading day. The VIX, or CBOE Volatility Index, is a gauge that measures market risk based on investor sentiment of the S&P 500.
“We’ve seen it at 30 and 35 under uncertain conditions,” he said. That means “there is some hedging going on, but really not as much as there could be given uncertainty.”
Hedging is a move investors make in an attempt to offset the downward risk in one equity by investing in another. The move can reduce risk but at a cost to potential gains.
The Dow, after putting together a two-day winning streak, deflated in response to President Donald Trump’s declaration that American manufacturers should get out of China. The comments came after China announced its plan to impose new tariffs on $75 billion worth of U.S. imports as the trade war continues to escalate.
Trade tensions between the world’s largest economies have been strained for more than a year, a time in which both countries have volleyed duties on hundreds of billion dollars worth of one another’s imports.
“I would love this to be clarified. We come to a deal on trade, boy, this market is up 10% to 15%,” Siegel said, “but without it’s going to be worrisome.”
