Date
11 December 2018
Falling bond yields and doubts about the US-China trade war ceasefire sparked a severe selloff on Wall Street on Tuesday. Photo: Reuters
Falling bond yields and doubts about the US-China trade war ceasefire sparked a severe selloff on Wall Street on Tuesday. Photo: Reuters

US stocks tumble on trade, growth worries

US stocks tumbled on Tuesday, with the benchmark Dow index shedding nearly 800 points, as the bond market sent unsettling signs about economic growth and investors worried anew about global trade.

A prominent Federal Reserve official’s comments about the path of interest rate hikes added to the uncertainty for investors, as did setbacks for Britain’s plans to leave the European Union, Reuters reports.

The Dow Jones Industrial Average fell 799.36 points, or 3.1 percent, to 25,027.07, and the S&P 500 index plunged 3.24 percent to 2,700.06, posting its biggest single-day percentage drop in about two months.

The small-cap Russell 2000 dropped 4.4 percent, its largest one-day plunge in more than seven years.

The Nasdaq Composite lost 3.8 percent.

Investors were focused on US Treasury yields, where the benchmark 10-year yield fell to its lowest point since mid-September.

The spread between the 10-year yield over its two-year counterpart also shrank to the smallest in over a decade, a closely watched signal because a so-called yield curve “inversion,” when the two-year yields more than the 10-year bond, preceded all the recessions of the past 50 years.

Part of the curve did invert, with two-year and three-year yields holding above the five-year yield for a second day.

“It’s fears about the inverted yield curve and what that means for the economy and is it a precursor to a recession,” Reuters quoted Chuck Carlson, chief executive at Horizon Investment Services in Hammond, Indiana, as saying.

Financial shares, which are particularly sensitive to bond market swings, dropped 4.4 percent on Tuesday, while the trade-sensitive industrial sector fell 4.4 percent.

Stocks had rallied on Monday following a truce between US President Donald Trump and Chinese President Xi Jinping on their trade dispute following weekend talks in Argentina, but investor optimism over a resolution faded on Tuesday.

Trump himself warned he would revert to tariffs if the two sides could not resolve their differences.

“The sell-off that we have seen throughout the day is really about taking a look at the tariff conversation and realizing that nothing has been resolved and that there is still some work to do,”  Delores Rubin, an equities trader at Deutsche Bank Wealth Management in New York, told Reuters.

In comments on Tuesday, New York Fed President John Williams said the US central bank should expect to continue raising interest rates “over the next year or so” even while it pays close attention to possible risks highlighted by financial markets.

The New York Stock Exchange and Nasdaq will be closed on Wednesday, for a day of mourning for former President George H.W. Bush, who died last Friday at the age of 94.

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RC

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