U.S. And Chinese Stocks Plunge As Tensions Escalate Before Pelosi’s Visit To Taiwan

Topline

Global stocks tanked ahead of House Speaker Nancy Pelosi’s planned visit to the democratically governed island of Taiwan on Tuesday, a move which has led to rising tensions with China and that has rattled investors concerned about additional geopolitical uncertainty in markets.

Key Facts

U.S. stocks opened lower: The Dow Jones Industrial Average fell 0.9%, nearly 300 points, while the S&P 500 lost 0.6% and the tech-heavy Nasdaq Composite 0.5%.

Global markets fell on Tuesday ahead of a planned visit to Taiwan by U.S. House Speaker Nancy Pelosi (D-Calif.), which would mark the first visit to the island by an official in her position since Newt Gingrich in 1997.

With Pelosi expected to arrive in Taiwan on Tuesday evening local time to meet with government officials there, the Chinese government has warned her not to do so and threatened “strong countermeasures.”

China has historically claimed Taiwan as part of its territory: In addition to condemning Pelosi’s upcoming visit, Beijing has sent several warplanes to buzz the dividing line of the Taiwan strait in a show of force.

Chinese stocks also moved lower on Tuesday amid the rising tensions, with the Shanghai Composite index and Hong Kong’s Hang Seng index both falling more than 2%, while big name stocks like Baidu and NetEase each fell roughly 4%.

With Taiwan serving as an international hub for semiconductor manufacturing, global semiconductor stocks also fell, with the likes of Nvidia and Micron Technology falling nearly 1% and 1.5%, respectively.

Crucial Quote:

“We’re seeing more risk aversion on Tuesday as Nancy Pelosi’s trip to Taiwan generates numerous unsettling headlines at a time of strained ties between the U.S. and China,” says Craig Erlam, senior market analyst at Oanda. With threats from Beijing continuing on Tuesday—just hours ahead of Pelosi’s expected arrival, that is “clearly making investors very nervous.”

Tangent:

Amid the added geopolitical uncertainty in markets, nervous investors also continued to assess second quarter earnings, with shares of Caterpillar falling 3% after the construction and manufacturing giant reported lackluster results. Shares of ride-sharing giant Uber jumped 15%, meanwhile, after the company reported higher-than-expected revenue and for the first time, positive quarterly free cash flow.

What To Watch For:

Stocks could rebound after Pelosi lands in Taiwan on Tuesday, JPMorgan analysts said in a note on Tuesday. “If there is no immediate reaction [from China], you may see markets move higher,” the firm predicts, noting that several other U.S. senators have visited Taiwan this year. “Some of the Chinese response to those visits were military drills in the Taiwan Strait and military plane flyovers of Taiwan.”

Further Reading:

Stocks Fall After Market’s Best Month Since 2020, Oil Prices Plunge 5% (Forbes)

Here’s Why Stocks Are Rallying Despite Troubling GDP Report—History Shows It’s Not Unusual And They Could Keep Rising (Forbes)

Dow Jumps 300 Points Despite U.S. GDP Shrinking For A Second Quarter In A Row—But Experts Say No Recession Yet (Forbes)

‘Travel Is On Fire’: Uber, Lyft Stocks Surge As Americans Splurge Despite Skyrocketing Inflation (Forbes)