SEVERE WX : Flood Warning View Alerts

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
Overcast
55° wxIcon
Hi: 62° Lo: 56°
Feels Like: 55°
Kokomo
Overcast
56° wxIcon
Hi: 61° Lo: 55°
Feels Like: 56°
Rensselaer
Overcast
50° wxIcon
Hi: 59° Lo: 50°
Feels Like: 50°
Fowler
Overcast
50° wxIcon
Hi: 60° Lo: 52°
Feels Like: 50°
Williamsport
Overcast
53° wxIcon
Hi: 62° Lo: 55°
Feels Like: 53°
Crawfordsville
Overcast
57° wxIcon
Hi: 62° Lo: 57°
Feels Like: 57°
Frankfort
Overcast
57° wxIcon
Hi: 62° Lo: 55°
Feels Like: 57°
Delphi
Overcast
51° wxIcon
Hi: 60° Lo: 54°
Feels Like: 51°
Monticello
Overcast
51° wxIcon
Hi: 59° Lo: 52°
Feels Like: 51°
Logansport
Overcast
55° wxIcon
Hi: 59° Lo: 51°
Feels Like: 55°
Near Record Heat On The Way
WLFI Radar
WLFI Temps
WLFI Planner

Indiana Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 150664

Reported Deaths: 4008
CountyConfirmedDeaths
Marion24697784
Lake13220352
St. Joseph8877159
Elkhart8469132
Allen7880222
Hamilton5962113
Vanderburgh559360
Tippecanoe354714
Monroe320738
Hendricks3183130
Johnson2995128
Porter297848
Clark285461
Delaware282074
Vigo252637
Madison229593
Cass222021
LaPorte215557
Warrick188464
Kosciusko176823
Floyd174867
Howard158866
Bartholomew139758
Dubois135125
Marshall132526
Henry122628
Grant120939
Wayne119327
Boone118848
Hancock114145
Noble113533
Jackson108713
Morgan92240
Dearborn91628
Daviess84033
Gibson83411
Clinton81616
Shelby79429
Lawrence78534
LaGrange76715
Harrison74024
Putnam71016
Knox70310
DeKalb69411
Posey6796
Steuben6008
Fayette58517
Miami5845
Montgomery57222
White56815
Jasper5624
Greene51837
Scott50813
Decatur49839
Adams4725
Clay4346
Whitley4316
Sullivan42812
Ripley4228
Wells4155
Starke3937
Wabash3919
Orange38725
Huntington3785
Spencer3706
Franklin36525
Jennings36013
Washington3592
Randolph3398
Fulton3362
Jefferson3305
Pike31913
Carroll31413
Perry29514
Jay2876
Fountain2863
Tipton26823
Parke2203
Newton21811
Vermillion2181
Rush2044
Owen2021
Martin1950
Blackford1923
Crawford1491
Pulaski1471
Brown1303
Ohio1227
Benton1070
Union1040
Switzerland890
Warren751
Unassigned0233

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