“Round up the usual suspects!” barks Captain Renault in the 1942 classic film Casablanca. Played by Claude Rains with sly irony, the Vichy gendarme kicks off a shooting investigation to which he already knows the answers.

I thought of that famous line of movie dialogue today, while observing the financial markets. The main stock indices closed mostly lower, with the Nasdaq getting crushed for the second day in a row. The CBOE Volatility Index (VIX) spiked 5.32%. The Dow edged slightly higher and the S&P 500 fell.

To know the reasons for today’s stock market behavior, round up the usual suspects. First and foremost is the global tariff battle, which has dragged on this year like trench warfare.

The world’s two biggest economies remain at loggerheads in a worsening trade war and investors are understandably fed-up.

China asserted today that it will definitely retaliate if the White House imposes new tariffs. A public comment period concerning a proposed batch of additional U.S. tariffs against $200 billion worth of Chinese imports is scheduled to end today at midnight. President Trump has vowed to follow through on the measures.

The new tariffs would directly target popular consumer products, including tires, bicycles, car seats for babies, furniture, and lighting products.

China and the U.S. have already implemented tit-for-tat tariffs on $50 billion worth of each other’s goods. Trump is insisting that China provide greater access to its markets, quit the alleged theft of U.S. intellectual property, reduce subsidies to a broad array of industries, and help cut the $375 billion trade gap. Both sides have dug in their heels, with no resolution in sight.

Also on Thursday, frenzied negotiations continued between Canada and the U.S. over revamping the North American Free Trade Agreement (NAFTA). As of today’s market close, negotiators were still haggling and they expected to work into the night.

The U.S. and Mexico reached a separate deal last week and Trump has threatened to blow-up the trilateral NAFTA pact and move forward with a bilateral U.S.-Mexico partnership.

When Germany sneezes…

President Trump has directed personal ire toward German Chancellor Angela Merkel (pictured) for what he decries as her country’s “globalism” and lenience toward immigrants. The White House has targeted Germany’s vast automotive sector for trade sanctions.

Problem is, Germany is an export powerhouse and the growth engine of Europe. When Germany sneezes, not just Europe but the global economy catches cold.

Further dampening investor sentiment were new numbers showing that German industrial orders fell unexpectedly in July.

The German Federal Statistics Office reported today that contracts for “Made in Germany” goods were down by 0.9% after a revised fall of 3.9% in the previous month. Analysts had predicted a rise of 1.8%.

The U.S. imposed tariffs on European Union steel and aluminum on June 1 and Trump is threatening to extend them to EU cars and car parts. The U.S. president has vowed to push German luxury cars off American roads. Trump recently confided to French President Emmanuel Macron that the sight of Mercedes luxury sedans on the streets of Manhattan offends him.

If that doesn’t alarm you, the following chart should. Compiled with data from the International Monetary Fund, the chart shows the growth in real gross domestic product (GDP) in Germany from 2012 to 2017, with projections up until 2022.

In 2017, Germany’s real GDP grew by about 2.51% versus the previous year. However, growth is expected to slow in future years, as the global expansion cools. These statistics were compiled before the trade war heated up:

These woes are offsetting positive U.S. economic data. The Labor Department reported today that initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 203,000 for the week ended September 1, the lowest level since December 1969, when Richard Nixon sat in the Oval Office. Economists had forecast claims rising to 214,000 in the latest week.

In a separate report, ADP National Employment data showed private payrolls increased by 163,000 jobs in August, a healthy rate of growth. However, economists had forecast private payrolls increasing by 190,000 jobs last month. Data for July was revised downward to show private hiring rising by 217,000 jobs instead of the previously reported 219,000.

For today’s stock market slump, the other suspected perpetrators include stirring inflation, rising interest rates, a strengthening dollar, excessive equity valuations, fears of tech sector regulations, and geopolitical instability.

The tech sector was particularly punished today, amid slipping semiconductor demand and fears of greater social media regulation.

Add to the line-up the growing disarray in the Trump administration. Historically, stocks lose ground in the weeks before a midterm election, as investors grapple with uncertainty. This election cycle, presidential scandals and partisan bickering are deepening, adding to investor anxiety.

Investigative bombshells this week have portrayed a West Wing in chaos, which rattles investors but frankly shouldn’t come as a surprise. To borrow a quote from Captain Renault: Wall Street is shocked — shocked — to find that gambling is going on.

Thursday Market Wrap

• DJIA: 25,995.87 +20.88 (0.08%)
  
• S&P 500: 2,878.05 -10.55 (0.37%)
  
• Nasdaq: 7,922.73 -72.45 (0.91%)
  

Thursday’s Big Gainers

• Arrowhead Pharmaceuticals (NSDQ: ARWR) +37.52%

Positive clinical data prompts analyst upgrade of biotech.

• Cloudera (NYSE: CLDR) +24.22%

Software-as-a-service provider beats on earnings.

• AeroVironment (NSDQ: AVAV) +14.25%

Drone maker posts strong earnings.

Thursday’s Big Decliners

• Iovance Biotherapeutics (NSDQ: IOVA) -24.78%

Biotech releases weak clinical data.

• Dicerna Pharmaceuticals (NSDQ: DRNA) -18.11%

Analysts unimpressed with biotech’s lead clinical trial.

• REV Group (NYSE: REVG) -12.32%

Specialty vehicle maker disappoints on earnings.

Letters to the Editor

“Why is national security used to justify certain tariffs?” — Steven B.

Developed countries sometimes deploy trade barriers to shield certain industries that are considered strategically important, such as those supporting national security. Notably, the aerospace/defense industry is viewed as vital to state interests and entails major protections.

Questions about tariffs? I’m here to help: mailbag@investingdaily.com

John Persinos is the managing editor of Investing Daily.