Wall Street’s Faith in Trade Truce Fades Fast

WWD Digital Daily - - News - BY KATHRYN HOP­KINS

The Dow plunged al­most 800 points Tues­day, with re­tail stocks feel­ing the pain.

Wall Street’s faith in the trade truce didn't last long — and re­tail stocks took a ham­mer­ing Tues­day as U.S. Pres­i­dent Trump took to Twit­ter.

Fad­ing op­ti­mism in ne­go­ti­a­tions be­tween the U.S. and China and pos­tur­ing by Trump com­bined with wor­ries over the health of the global econ­omy fu­eled a sell- off in stocks that gave the Dow Jones In­dus­trial Av­er­age its worst day since early Oc­to­ber.

The lead­ing in­dex tum­bled al­most

800 points, or 3.1 per­cent, to close at 25,027.07, while the S&P 500 shed 3.2 per­cent to 2,700.06, with many re­tail stocks feel­ing the pain.

Among the hard­est hit were G-III

Ap­parel Group, down 6.7 per­cent to $40.76; Amer­i­can Ea­gle Out­fit­ters Inc., 6.8 per­cent to $19.89; Vince Hold­ing Corp.,

5.8 per­cent to $12.13; and Ur­ban Out­fit­ters Inc., 4.6 per­cent to $37.50.

This came in stark con­trast to Mon­day, when mar­kets were rid­ing high on news that Trump agreed to hold off from rais­ing tar­iffs on some Chi­nese im­ports to 25 per­cent from 10 per­cent as part of a 90-day ne­go­ti­a­tion.

The agree­ment also meant that his threat to un­leash levies on another

$267 bil­lion has been put on ice. Such a move would have most likely dragged the fash­ion sec­tor into the fray. So far, it has avoided any big hits in the trade war, with the no­table ex­cep­tion of hand­bag-mak­ers.

But while Trump's ac­tions boosted many re­tail stocks Mon­day, jit­ters be­gan to creep in among in­vestors to­day. This was likely ex­ac­er­bated by a se­ries of tweets from Trump stat­ing he was hope­ful a deal could be made in 90 days, but reaf­firm­ing that he was a “Tar­iff Man.”

“Pres­i­dent Xi and I want this deal to hap­pen, and it prob­a­bly will,” he tweeted, adding that ne­go­ti­a­tions had al­ready started, led by U.S. trade rep­re­sen­ta­tive Robert Lighthizer.

“But if not re­mem­ber, I am a Tar­iff Man. When peo­ple or coun­tries come in to raid the great wealth of our Na­tion, I want them to pay for the priv­i­lege of do­ing so. It will al­ways be the best way to max out our eco­nomic power.”

If a deal can­not be made, the Trump ad­min­is­tra­tion has al­ready warned tar­iffs would rise to 25 per­cent at the end of the 90-day pe­riod. It would also mean that the prospect of levies on a fur­ther $267 bil­lion would be more likely. If that hap­pens, the to­tal amount of tar­iffs would sur­pass the value of all Chi­nese im­ports the U.S. ac­cepted last year.

Adding to mar­ket woes on Tues­day was the nar­row­est gap be­tween yields on two-year and 10-year U.S. Trea­sury notes since 2007, driven by a flight of cash from tra­di­tional riskier stocks to safe haven as­sets in­clud­ing U.S. gov­ern­ment bonds. This is seen as a red light be­cause it has in the past pre­ceded some re­ces­sions.

“The post-G20 re­lief rally in eq­ui­ties seems to be fiz­zling out to­day, so at­ten­tion has shifted in­stead to some wor­ry­ing signs emerg­ing in the U.S. Trea­sury mar­ket,” said Oliver Jones, an economist at con­sul­tancy Cap­i­tal Eco­nom­ics. “The in­ver­sion of parts of the yield curve is fur­ther ev­i­dence that in­vestors are com­ing round to our down­beat view of the prospects for the U.S. econ­omy.”

A trader works on the floor of the New York Stock Ex­change.

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