U.S. stocks plunged Tuesday as rising concerns that an economic downturn lies ahead and mixed signals from the White House on the state of U.S.-China trade talks rattled investors who had been in a buying mood earlier this week.
The Dow Jones Industrial Average lost 799.36 points, or 3.1%. The S&P 500 Index lost 90.31 points, or 3.2%, while the Nasdaq Composite dropped 283.09 points, or 3.8%. Small-cap stocks were hit hard, with the Russell 2000 Index falling 68.21 points, or 4.4%.
Tuesday’s losses more than erased the gains of the previous two trading days, when cautiously optimistic investors bid up stock prices amid hopes that U.S. and China were resolving their trade dispute. Investor bullishness about the suspension of a trade war lifted stocks Monday, but were quickly undermined by conflicting U.S.-China views on the trade talks.
As the markets opened Tuesday, President Trump began tweeting about his administration’s trade negotiations with China. “President Xi and I want this deal to happen, and it probably will. But if not remember… I am a Tariff Man,” his Twitter account said. Adding to uncertainty, Larry Kudlow, Trump’s top economic adviser, said Monday the truce would start on Jan. 1, with the White House later saying the 90-day period began on Dec. 1.
The negotiations with China have already started. Unless extended, they will end 90 days from the date of our wonderful and very warm dinner with President Xi in Argentina. Bob Lighthizer will be working closely with Steve Mnuchin, Larry Kudlow, Wilbur Ross and Peter Navarro…..
— Donald J. Trump (@realDonaldTrump) December 4, 2018
……on seeing whether or not a REAL deal with China is actually possible. If it is, we will get it done. China is supposed to start buying Agricultural product and more immediately. President Xi and I want this deal to happen, and it probably will. But if not remember,……
— Donald J. Trump (@realDonaldTrump) December 4, 2018
….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. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN
— Donald J. Trump (@realDonaldTrump) December 4, 2018
…..But if a fair deal is able to be made with China, one that does all of the many things we know must be finally done, I will happily sign. Let the negotiations begin. MAKE AMERICA GREAT AGAIN!
— Donald J. Trump (@realDonaldTrump) December 4, 2018
The stocks of trade-sensitive industrial stocks were hit hard, with Caterpillar falling 6.9% and John Deere dropping 6.6%.
“Today’s move feels like the market is a scorned lover. It had believed, for whatever reason, that progress was being made at the G-20 and that turns out to be murky,” Michael Antonelli, a managing director at Robert W Baird & Co., told Bloomberg. “It feels lied to.”
Financial stocks also weighed the market down as the bond market signaled fears of a weakening economy. Long-term yields dropped, which while reducing the threat of inflation suggests investors are expecting an economic slowdown, if not a recession in the next two years.
Wells Fargo declined 4.5%, PNC Bank dropped 4.7% and Bank of America fell 5.4%. Some regional banks fell further, with Key Bank down 5.4% and Fifth Third Bancorp down 6.5%. Banks are sensitive to falling interest rates as they reduce the interest that borrowers pay them for loans.
“We’ve had a huge move in the yield curve. Investors are worried about growth right now. Today is the perfect storm,” R.J. Grant, head of trading at Keefe, Bruyette & Woods, told Reuters. “You’ve nothing really tangible coming out of the G20 summit. You have worries about growth.”
