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Dow, S&P 500, Nasdaq Plunge Some 3% on Renewed Trade War Fears

US Market Drop NYSEUS Market Drop NYSE
Traders work at the New York Stock Exchange on August 5, 2019 at Wall Street in New York City.Johannes Eisele—AFP/Getty Images

What a way to start the week

The major indices all plunged Monday: the S&P 500 by 3%, the Dow 2.9% lower, and close to 3.5% off the value of the Nasdaq.

The bad news wasn't restricted to the U.S. The FTSE 100 was off by 2.5%, the DAX by 1.8%, and the Stoxx 600 by 2.3%. The Nikkei dropped 1.7%, the Hang Seng was down by 2.9%, and the Shanghai, 1.6%.

News of China's currency devaluation has hit hard. More than anything else, it indicates the continuation of the ongoing trade war between the U.S. and China and continued uncertainly—which the markets hate.

"Any hopes of a quick resolution with China are fading quickly," noted Ryan Detrick, senior market strategist for LPL Financial.

In addition to the trade war with China, other factors are at work. "We have been observing slowing global manufacturing and [purchasing managers' index] due to high political uncertainty levels," said Stoyan Panayotov, senior advisor at Babylon Wealth Management.

Some say equities markets are only catching up to what bond traders have been seeing for some time.

"Since November 2018, the 10-year Treasury Note yield has fallen consistently from 3.25% to 1.75%," said Charles Self, chief investment officer at iSectors. He says that the bond market believes the "Federal Reserve raised interest rates too high last year to sustain economic growth" and that they're not dropping rates fast enough. "Forward looking indicators such as manufacturing new orders, aggregate hours worked and gold prices agree with the inverted yield curve that a recession could start within the next six months."

But the low Fed rates mean the central bank may not have enough room to maneuver should a serious downturn happen. Ed Al-Hussainy, senior interest rate and currency analyst at Columbia Threadneedle Investments, says his view is that "interest rates are likely to go to zero by next summer."

All that, and it's only Monday.

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