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 3:42 AM
Updated: Dec 5, 2018 3:42 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.

Huntsville
Overcast
43° wxIcon
Hi: 54° Lo: 38°
Feels Like: 36°
Florence
Overcast
43° wxIcon
Hi: 52° Lo: 36°
Feels Like: 38°
Fayetteville
Overcast
41° wxIcon
Hi: 56° Lo: 37°
Feels Like: 34°
Decatur
Overcast
43° wxIcon
Hi: 55° Lo: 37°
Feels Like: 36°
Scottsboro
Overcast
45° wxIcon
Hi: 56° Lo: 38°
Feels Like: 45°
WAAY Radar
WAAY WAAY-TV Cam
WAAY Temperatures

Alabama Coronavirus Cases

Cases: 244993

Reported Deaths: 3572
CountyCasesDeaths
Jefferson32314500
Mobile19859361
Madison13223148
Tuscaloosa13049154
Montgomery12342236
Shelby1031577
Baldwin873398
Lee775766
Morgan662650
Calhoun6301119
Etowah627666
Marshall627255
Houston525638
DeKalb485536
Cullman439442
Limestone425145
St. Clair419555
Lauderdale407854
Elmore406864
Walker3657111
Talladega351454
Jackson320423
Colbert311942
Blount292240
Autauga273542
Franklin252633
Coffee245415
Dale232654
Dallas226232
Chilton223438
Russell22193
Covington218934
Escambia198331
Chambers176850
Tallapoosa176391
Pike158614
Clarke158419
Marion140236
Winston133023
Lawrence127936
Pickens123518
Geneva12218
Marengo121524
Bibb117917
Barbour117310
Butler116541
Randolph102921
Cherokee102224
Hale97031
Clay91924
Fayette91616
Washington91219
Henry8546
Lowndes79929
Monroe78911
Cleburne77214
Macon73722
Crenshaw71130
Bullock69619
Perry6886
Conecuh68414
Lamar6798
Wilcox63518
Sumter58122
Greene42618
Choctaw42213
Coosa3444
Out of AL00
Unassigned00

Tennessee Coronavirus Cases

Cases: 363466

Reported Deaths: 4541
CountyCasesDeaths
Shelby47682658
Davidson42703420
Knox18764149
Rutherford17749161
Hamilton16701152
Williamson1140080
Sumner9744137
Out of TN758152
Wilson748178
Montgomery658683
Sullivan643996
Washington6000106
Putnam591382
Maury584267
Blount549160
Madison5349110
Bradley519735
Sevier484831
Unassigned468222
Robertson377453
Tipton365938
Hamblen345560
Gibson323365
Dyer320751
Greene308272
Anderson294629
Dickson289133
Coffee281841
Bedford275630
Carter272455
Lawrence270034
Obion265950
Cumberland257236
McMinn252355
Warren240020
Roane235229
Loudon228019
Jefferson226932
Fayette225338
Hardeman224737
Weakley216937
Monroe212744
Franklin208634
Lauderdale205023
Hawkins194934
Wayne192010
Trousdale190512
Henderson185133
Macon184028
Hardin178125
White176918
Carroll174734
Marshall174420
Rhea169731
Haywood162930
Lincoln161215
Cocke160630
Cheatham158617
Overton154335
Campbell154223
Henry153619
Giles146949
Smith143819
Johnson141621
McNairy140233
Fentress121920
Hickman118219
Lake11766
Bledsoe11745
DeKalb115822
Crockett115526
Marion109819
Scott10727
Chester102520
Grainger101217
Decatur95513
Unicoi85826
Claiborne8369
Benton81314
Grundy77714
Cannon7663
Lewis76314
Morgan7306
Union7195
Humphreys7098
Jackson68410
Polk66515
Stewart59415
Houston58720
Clay55318
Sequatchie5285
Meigs48913
Perry48321
Moore3963
Pickett39013
Van Buren3672
Hancock1673

Community Events