The new normal – high volatility, spikes and gaps

Large spikes and drops to start the U.S. stock-trading day have become increasingly more common.

Take Tuesday: President Donald Trump’s tariff threaton an additional $200 billion of Chinese goods sent the S&P 500 Index down more than three-quarters of one percent at the open.

The Dow Jones industrial average turned negative for the year amid its longest losing streak since March 2017. The dollar hit an 11-month high, and Treasury yields slid.

Trade tensions between the US and China are soaring. After the Trump administration said it was ready to hit Beijing with tariffs on $200 billion worth of goods, China’s Commerce Ministry warned it would retaliate. Trump said that could result in another round of US tariffs, altogether threatening $450 billion worth of Chinese goods.

Since mid-2013, the absolute percent change of the opening price from the previous day’s close for the benchmark exceeded one-half of one percent 31 times, 18 of which occurred this year alone.

Trading tensions between the two largest economies in the world will most likely lead to a new downward momentum in opening today, giving traders a profitable opportunity to place long positions.

Source: Bloomberg Finance L.P.
Chart: Used with permission of Bloomberg Finance L.P.

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