CONFUSION CAUSES STOCKS TO DIVE
Market tanks on confusion over U.S., China tariffs
Stocks tanked Tuesday as the goodwill generated by a truce between the U.S. and China over trade evaporated over confusion about what the two sides had actually agreed upon.
The Dow Jones Industrial Average fell nearly 800 points. The yield on the benchmark 10-year Treasury note declined to its lowest level in three months, a signal that the bond market is worried about long-term economic growth.
The sell-off short-circuited a recent rally on Wall Street. The market gained Monday after the Trump administration said U.S. and China agreed to a temporary ceasefire in a trade dispute. Last week, stocks jumped when the Federal Reserve’s chairman indicated the central bank could slow the pace of interest rate increases.
On Tuesday, investors’ confidence in the U.S.-China agreement faltered after a series of confusing and conflicting words from President Donald Trump and some senior officials. That contributed to renewed fears that the disagreement between the two economic powerhouses could slow the global economy.
“This trade issue is the big overhang, the biggest ceiling, if you will, to keeping the markets from moving higher,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab.
Technology companies, banks and industrial stocks accounted for much of the broad sell-off. Utilities stocks rose. Smallercompany stocks fell more than the rest of the market.
Big losses for Boeing and Caterpillar, major exporters which would stand to lose much if trade tensions persist, weighed on the Dow.
The bond market signaled its concerns as the gap between two-year and 10-year Treasurys reached its narrowest difference since 2007. The 10-year yield is still higher, but not by much.
When yields for long-term bonds drop lower than yields for short-term bonds, it’s what economists call an “inverted yield curve.” It indicates that investors are forecasting a weaker economy and inflation in coming years. An inverted yield curve has also preceded each recession of the last 60 years, though sometimes by more than a year.
“You have the drop in bond yields and the implications on growth going forward,” said Willie Delwiche, investment strategist at Baird.
The S&P 500 index slid 90.31 points, or 3.2 percent, to 2,700.06. The Dow plunged 799.36 points, or 3.1 percent, to 25,027.07, more than erasing its 488-point gain over the previous two trading days. It was down as much as 818 points earlier. The technologyheavy Nasdaq composite lost 283.09 points, or 3.8 percent, to 7,158.43.
The sell-off came ahead of Wednesday’s closure of U.S. stock and bond markets in observance of a national day of mourning for former President George H.W. Bush.