‘Detour into crazy town’ halts Dow’s rally

Markets rallied out of the gate on Tuesday on hopes that the U.S.-China trade discussions may find traction toward solving their differences. But they quickly went off track.

The Dow Jones industrial average bounced up 355 points in initial trades after a wild Monday, then started slipping as the volatility of the past weeks shook markets again.

At lunchtime, in a tempestuous live broadcast, President Donald Trump told Democratic leaders Nancy Pelosi and Chuck Schumer that he would shut down the government if he does not get $5 billion in funding to pay for partial construction of a wall along the southern U.S. border. In the course of the meeting, stocks swung into the red. The Dow sank more than 150 points in minutes.

“The market was looking good until Trump took a detour into crazy town during his meeting with Pelosi and Schumer,” said Ivan Feinseth, chief investment officer at Tigress Financial Partners.

Traders were also closely watching for any developments on the trade dispute between the United States and China. It appeared that China had conceded to lower tariffs to 15 percent, down from 40 percent, on automobiles produced in America.

Early Tuesday, Trump touted the China negotiations in a tweet, which added to the optimism: “Very productive conversations going on with China! Watch for some important announcements!”

Then just before the televised Oval Office meeting, news broke that the United States plans to condemn China over hacking and economic espionage, and that stalled any momentum in the market.

“Things were looking good with Trump’s favorable announcement on trade,” Feinseth said. “But when you are trying to work with China and then want to sanction them for hacking and espionage, how do you move forward? We started with talks on reducing auto tariffs and a potential trade deal, and somehow we made a detour into sanctions and espionage.”

The Dow and S&P were having their best day of the month, and the Dow rallied enough early thread back into positive territory for 2018. By the end of trading, the Dow was down 53 points, or 0.2 percent. The Standard & Poor’s 500-stock index was level, and the tech-heavy Nasdaq composite caught a 0.1 percent gain.

“The U.S.-China trade and tariff news rollercoaster is the biggest driver of market sentiment this week,” said Luke Tilley, chief economist at Wilimington Trust. “Any news that tensions are ratcheting up would, in our view, weigh on market performance.” Oil was having a good day after dropping 30 percent over the past two months. West Texas Intermediate was 0.5 percent higher at around $52 per barrel and Brent crude was up more than 1.5 percent at $6.

The drop in oil prices helped keep business prices in check in November. The Labor Department on Tuesday said its producer-price index, which measures businesses’ prices for their goods and services, increased only 0.1 percent above October’s 0.6 percent tilt.