Market dips as jitters remain over trade dispute
Stocks slumped Tuesday as traders worried that the U.S. and China made less progress than originally thought on defusing their dispute over trade.
Investors had initially welcomed the truce that the administration said was reached over the weekend in Buenos Aires between Presidents Donald Trump and Xi Jingping — and sent stocks soaring Monday. But on Tuesday, after a series of confusing and conflicting words from Trump and some senior officials, stocks tumbled, with the Dow Jones sinking as much as 800 points.
“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 & derivatives at Charles Schwab.
White House aides have struggled to explain the details of what the two countries actually agreed on. And China has not confirmed that it made most of the concessions that the Trump administration has claimed.
Bond prices surged, sending yields sharply lower as investors turned to lower-risk assets.
The yield on the bench- mark 10-year Treasury note also declined to its lowest level in three months.
Technology companies, banks and industrial stocks accounted for much of the broad sell- off. Utilities stocks rose. Smaller-company stocks fell more than the rest of the market.
Big losses for Boeing and Caterpillar, major exporters that 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 10year Treasurys reached its narrowest difference since 2007. The 10-year yield is still higher, but not by much.
When yields for longterm 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 bigger issue is you have this unwind from yesterday’s rally.”
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 technology-heavy Nasdaq composite lost 283.09 points, or 3.8 percent, to 7,158.43.
Small-company stocks, which investors see as more risky than large multinationals, fell more than the rest of the market. The Russell 2000 index gave up 68.21 points, or 4.4 percent, to 1,480.75.
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.
Moody’s Investors Service suggested in a report Tuesday that despite the latest U.S.-China talks, both countries remain far from resolving their dispute.
“Narrow agreements and modest concessions in their ongoing trade dispute will not bridge the wide gulf in their respective economic, political and strategic interests,” Moody’s analysts wrote.
The trade dispute has rattled markets in recent months as signs emerged that it has begun affecting corporate profits. That’s stoked traders’ fears that if it drags much longer it could further weigh on global economic growth.
“There are plenty of reasons to believe that growth in either the economy or the markets is going to soften next year,” Frederick said.
The jitters helped drive demand for government bonds Tuesday, pushing prices higher. The yield on the 10-year Treasury note fell to 2.91 percent from 2.99 percent late Monday, a large move. The slide in bond yields, which affect interest rates on mortgages and other consumer loans, weighed on bank stocks. Citigroup fell 4.5 percent to $62.26.