Stock Markets Close Mixed; Trump Ban Hits China Stocks

Friday was a fitting end to a busy week on Wall Street, as stock markets remained deeply mixed. The Nasdaq Composite wasn't able to hit another record high close, instead giving way to declines in the wake of some high-profile tech earnings disappointments. However, the Dow Jones Industrial Average (^DJI 0.56%) and S&P 500 (^GSPC -0.88%) managed to poke into the green right at the end of the day.

Today's stock market

Data source: Yahoo! Finance.

With the COVID-19 pandemic front and center in people's minds, it's been a while since investors had to focus on trade disputes. But the geopolitical picture has gotten more complicated, as the White House ramped up efforts to take a firm stance against several international trade partners. Moves to impose aluminum tariffs on Canada were met with retaliatory efforts from north of the border, but most of the attention went to Trump administration moves against China. That made the mood about Chinese stocks downbeat to finish the week.

A ban on Chinese social media

Late Thursday, President Trump signed an executive order aimed directly at Chinese short-video mobile app provider TikTok and its parent company, ByteDance. The order cited the app's capturing of data as a threat to the national security of the U.S., as it would potentially allow China's ruling party to track government officials and conduct various types of espionage. A similar order targeted the WeChat app from Tencent Holdings (TCEHY 0.10%), whose shares fell 7% on the day.

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Parties subject to U.S. jurisdiction would no longer be permitted to do transactions with the companies, with the rule becoming effective 45 days following the signing of the order. The likely impact will be that American advertisers won't be able to conduct business with TikTok and WeChat, and the app will no longer be available for download on U.S.-based application stores.

What's less clear is what will happen with current users. Few experts believe that use of the app by itself would constitute a "transaction" for purposes of the order. However, obtaining software updates might be prohibited, which would gradually degrade usability.

It's also unclear how this could affect negotiations between ByteDance and Microsoft (MSFT -1.27%) to buy TikTok, either in its entirety or for its U.S. operations. Presumably, the 45-day window for the executive order matches up to what the White House said about the timing of a Microsoft deal.

Hitting Chinese stock prices

The impact of the executive order wasn't limited to ByteDance. Several prominent Chinese stocks lost significant ground. Alibaba Group Holding (BABA 0.28%) was down 5% on the day, while video game specialist NetEase (NTES 1.09%) and microblogging service Weibo (WB -1.98%) were both down 3%.

Hostility toward Chinese stocks hasn't been limited to the tech space. Fraudulent activity at coffee kiosk operator Luckin Coffee (LKNC.Y -1.52%) spurred the Nasdaq to delist shares of the company, and it raised broader discussions of whether any Chinese companies with ties to the government should be able to have their shares listed on U.S. exchanges. In response, some companies have contemplated taking themselves private, or listing shares in Hong Kong instead.

Investors remember how trade-related issues affected the markets in 2019. With COVID-19 complicating matters, adding a trade war to the mix could make the international stock markets even tougher to navigate.