Dow plunges 799 points on trade, slowdown fears

That was fast. Wall Street's enthusiasm for the US-China trade truce has completely vanished.The Dow ...

Posted: Dec 5, 2018 4:42 AM
Updated: Dec 5, 2018 4:42 AM

That was fast. Wall Street's enthusiasm for the US-China trade truce has completely vanished.

The Dow dropped 799 points, or 3.1%, on Tuesday. At one point, the index was down 818 points. The S&P 500 declined 3.2%, while the Nasdaq tumbled 3.8%.

Asia

Business, economy and trade

China

Continents and regions

Donald Trump

East Asia

International trade

Political Figures - US

Trade and development

Banking, finance and investments

Bond markets

Economic indicators

Economy and economic indicators

Financial markets and investing

Interest rates

Securities trading

Stock markets

Yield curve

Economic policy

International trade law

Tariffs and customs

Trade regulation and policy

Trade wars

Economic conditions

Economic decline

Recession

Monetary policy

North America

Stock indexes

The Americas

United States

Big tech stocks fell sharply. Apple (AAPL) and Alphabet (GOOGL) lost more than 4% apiece. Amazon (AMZN) and Netflix plunged more than 5%.

The selloff wipes out a chunk of last week's huge rally. The Dow jumped 288 points on Monday on relief about the ceasefire between the United States and China on trade.

But investors are quickly realizing that the US-China trade war is not over. The tariffs already put in place remain. And new tariffs could be implemented if the two sides fail to make progress.

"People are still very concerned about the trade war," said Dan Suzuki, portfolio strategist at Richard Bernstein Advisors. "Financial markets are increasingly showing signs of fear of a recession."

The selling erased nearly $800 billion from the S&P 500's market value, according to S&P Dow Jones Indices. Even though it was the Dow's fourth-biggest point decline in history, the percentage loss doesn't even crack the top 25 from the past decade. All three major indexes remain positive on the year.

Trade war fears persist

President Donald Trump did not help Wall Street's trade war worries on Tuesday. Trump said that he would "happily" sign a fair deal with China but also left open the possibility that the talks will fail.

"President Xi and I want this deal to happen, and it probably will," Trump tweeted. "But if not remember... I am a Tariff Man."

Those words aren't likely to bolster confidence among investors already worried about the negative consequences of the trade war. Steel and aluminum tariffs have lifted raw material costs and caused disarray in supply chains. And uncertainty about trade policy makes it very difficult for companies to make investment decisions.

"This tariff situation still looms large over the market," said JJ Kinahan, chief market strategist at TD Ameritrade.

Treasury Secretary Steven Mnuchin acknowledged that the market turbulence reflects uncertainty about the US-China trade truce.

"The market is now in a wait-and-see," Mnuchin said at the Wall Street Journal's CEO Council annual conference in Washington. "The market is trying to figure out is there going to be a real deal at the end of the 90 days or not."

The VIX volatility index surged 26% on Tuesday. The Fear & Greed Index, a CNN Business gauge of market sentiment, fell into "extreme fear."

Recession gauge flashes yellow

Investors have also grown very worried in recent days about fluctuations in the bond market. The gap between short and long-term Treasury rates has narrowed significantly this week. Before almost every recession, the yield curve has inverted, meaning short-term rates are higher than long-term ones.

The difference between the 10-year and two-year Treasury yields shrank on Tuesday to the smallest since just before the Great Recession. And the less closely watched gap between three and five-year Treasury yields inverted on Monday.

"Inversion is usually the first sign of an economic slowdown," said Kinahan. He cautioned that further evidence is needed and signs of a recession are not evident in corporate earnings.

The tightening yield curve reflects fears about a growth as well as concerns the Federal Reserve is raising interest rates more quickly than the economy can handle. Fed chief Jerome Powell gave a speech last week that investors interpreted as signaling the central bank could slow its rate hikes. However, there is a debate over whether Powell really was telegraphing a sudden change.

Barry Bannister, head of institutional equity strategy at Stifel, predicts the Fed will pause its rate hikes because it has already made monetary policy too tight. He pointed to the slowdown in the housing market caused by higher mortgage rates.

"It's playing with fire to be too tight and risk an inversion because you don't know what the outcome will be," Bannister told reporters on Tuesday. "Even if the Fed pauses, they may have already done too much."

Banks get crushed

A flattening yield curve and slowing economic growth hurt the profitability of banks.

Bank of America (BAC), Morgan Stanley (MS) Citigroup (C) and Wells Fargo (WFC) declined more than 4% apiece. The SPDR S&P Regional Banking ETF plunged 5.5%, the worst day since June 2016.

S&P Global Ratings warned in a report published on Tuesday that "signs of cooling could be emerging" in the US economy. The credit ratings firm raised its odds of a recession in the next 12 months to 15% to 20%, up from 10% to 15% in August. Citing higher interest rates and the fading impact of tax cuts, S&P expects US GDP growth to slow from 2.9% this year to 1.8% in 2020.

"This cycle is either in--or fast-approaching--its latter stages," S&P said.

But Suzuki, the Richard Bernstein Advisors strategist, cautioned that the markets could be overreacting. He pointed to strong corporate profits and the fact that the yield curve has not yet inverted.

"We don't see signs of an impending recession," Suzuki said. "There is a widening gap between market fear of a deterioration in the fundamentals and the actual fundamentals themselves."

US stock markets will be closed on Wednesday to honor President George H.W. Bush.

--CNN's Donna Borak contributed to this report.

West Lafayette
Cloudy
48° wxIcon
Hi: 49° Lo: 35°
Feels Like: 43°
Kokomo
Cloudy
44° wxIcon
Hi: 44° Lo: 34°
Feels Like: 37°
Rensselaer
Cloudy
° wxIcon
Hi: 48° Lo: 33°
Feels Like: °
Fowler
Cloudy
48° wxIcon
Hi: 47° Lo: 33°
Feels Like: 43°
Williamsport
Cloudy
45° wxIcon
Hi: 48° Lo: 34°
Feels Like: 37°
Crawfordsville
Cloudy
45° wxIcon
Hi: 48° Lo: 33°
Feels Like: 37°
Frankfort
Cloudy
45° wxIcon
Hi: 45° Lo: 33°
Feels Like: 37°
Delphi
Cloudy
43° wxIcon
Hi: 47° Lo: 33°
Feels Like: 37°
Monticello
Cloudy
43° wxIcon
Hi: 47° Lo: 35°
Feels Like: 37°
Logansport
Cloudy
43° wxIcon
Hi: 46° Lo: 33°
Feels Like: 37°
Spotty Showers/Storms to Frost & Some Fog
WLFI Radar
WLFI Temps
WLFI Planner

Indiana Coronavirus Cases

Data is updated nightly.

Cases: 727764

Reported Deaths: 13397
CountyCasesDeaths
Marion995211738
Lake53461965
Allen40457675
St. Joseph35506550
Hamilton35489408
Elkhart28433441
Tippecanoe22359218
Vanderburgh22284396
Porter18668307
Johnson17905377
Hendricks17180315
Clark12930191
Madison12592339
Vigo12431246
Monroe11858170
LaPorte11821210
Delaware10648185
Howard9865216
Kosciusko9378117
Hancock8251140
Bartholomew8052155
Warrick7771155
Floyd7649177
Grant7027174
Wayne7026199
Boone6679101
Morgan6555139
Dubois6150117
Marshall6005111
Dearborn579277
Cass5788105
Henry5688103
Noble558883
Jackson500872
Shelby490296
Lawrence4505120
Harrison434772
Gibson434692
Clinton427053
DeKalb426484
Montgomery423588
Whitley394739
Huntington389080
Steuben383857
Miami380666
Knox371890
Jasper363847
Putnam358860
Wabash353379
Adams340654
Ripley339170
Jefferson328881
White313254
Daviess295899
Wells291081
Decatur284292
Fayette279262
Greene277385
Posey271033
Scott265453
LaGrange265370
Clay259146
Washington240032
Randolph239781
Spencer232031
Jennings229549
Starke215453
Fountain212046
Sullivan211142
Owen198156
Fulton194740
Jay192530
Carroll188320
Orange182654
Perry182637
Rush172925
Vermillion168543
Franklin167735
Tipton162445
Parke145916
Blackford134632
Pike133234
Pulaski116445
Newton107234
Brown101641
Crawford99314
Benton98414
Martin88315
Warren81715
Switzerland7848
Union70810
Ohio56411
Unassigned0414

COVID-19 Important links and resources

As the spread of COVID-19, or as it's more commonly known as the coronavirus continues, this page will serve as your one-stop for the resources you need to stay informed and to keep you and your family safe. CLICK HERE

Closings related to the prevention of the COVID-19 can be found on our Closings page.

Community Events