Treasury Secretary Steven Mnuchin says there is a “real agreement” in the works between the U.S. and China on trade and other issues following President Donald Trump’s three hour dinner with President Xi Jinping in Argentina Saturday night. (Dec. 3)
U.S. stocks suffered steep declines Thursday as jittery investors react to the arrest of a top Chinese tech executive and a fresh swoon in oil prices that raised fresh fears about the health of the global economy.
Investors hoping for stability after the Dow Jones Industrial Average’s nearly 800-point fall on Tuesday, instead saw the blue chip average retreat as much as 785 points, or 3.1 percent, and give up its gains for the year. The Dow was off its lows and down 600 points around 12 noon.
The latest sell-off, which began earlier this week amid a signal from the bond market that a possible economic slowdown is coming and rising skepticism about the outcome of this past weekend’s trade war cease-fire between the U.S. and China, is continuing with a vengeance. . The expected slide on Wall Street follows weakness overseas and a global decline, where stocks slid 3.4 percent in Europe, declined 2 percent in Japan, and dropped 2.5 percent in Hong Kong.
The arrest of Meng Wanzhou, the chief financial officer and founder’s daughter at Huawei, China’s largest telecommunications equipment maker, raised fears that it will harm the tentative trade truce between the world’s two largest economies.
“Traders have quickly moved out of riskier assets reflecting nerves that the arrest is likely to escalate tensions between the U.S. and China once again,” Jasper Lawler, head of research at London Capital Group, told USA TODAY via email.
Market volatility and wild price swings have returned with a vengeance to Wall Street this year. The broad Standard & Poor’s 500 stock index has now moved up or down more than 2 percent on 15 trading days this year, the most in seven years, according data from S&P Dow Jones Indices.
“Volatility is back because investors have a lot of questions: Will the trade war escalate Will the Fed hike rates too far? Will these factors tip the economy into recession?” says Alan Skrainka, chief investment officer at Cornerstone Wealth Management.
Wall Street is closely watching an OPEC oil meeting today, where the cartel is considering a cut in daily production to help stabilize oil prices, which have fallen sharply in recent weeks. The size and timing of the cut will likely determine if the agreement is enough to stem the fall in crude prices.
U.S.-produced crude was down 4.5 percent Tuesday at $50.50 per barrel, about one-third lower than its recent high of $76 per barrel in early October. Lower oil prices hurts the earnings of U.S. energy companies, which drags their stock prices down.
Thursday was the first day U.S. traders could react to Tuesday’s rout, as U.S. financial markets were closed Thursday for the funeral services of late U.S. President George. H.W. Bush.
At midday, the damage to the major U.S. stock indexes was starting to add up. The technology-stock packed Nasdaq composite was down 13 percent from its late-August peak, putting it deeply into so-called “correction” territory, defined as a drop of 10 percent or more from a prior high. The Dow dropped nearly 9 percent off its record close and the broad Standard & Poor’s 500 fell 9.8 percent below its peak and within striking distance of another correction. The S&P 500 has already suffered two corrections this year, one in February and another in late November.
The ongoing trade dispute worries again caused Dow stocks with big exposure to China to fall sharply early Thursday. Apple shares fell 2.6 percent to a six-month low of $172.11, while heavy-equipment maker Caterpillar was down nearly 3 percent and airplane maker Boeing 6 percent lower.
Tuesday’s swift, steep price drop caught Wall Street off guard. It followed a six-day rally of more than 1,500 points for the Dow that was driven by a speech by Federal Reserve chief Jerome Powell that suggested the central bank would slow its interest rate hikes next year, as well as initial optimism over the U.S.-Sino trade truce.
But those good vibes quickly evaporated. Tuesday’s selloff was the “first hint of a ‘sell what you can’ type market,” said Chris Verrone of New York research firm Strategas Research Partners. The firm’s clients, he added, have been asking whether Tuesday’s big downdraft signaled investor “capitulation.”
Normally, markets don’t put in lows until there’s a large spike in fear and all the investors who want to get out do so.
For now, Verrone isn’t sure the selling has been exhausted.
“Deeper oversold conditions are often needed, and more convincing (rallies), are necessary to flip the tone of the (market),” he noted in a report. “For us, this remains a day by day assessment.”
“The failed rally isn’t a good sign heading into the rest of the year,” the U.S. Investment Policy Committee at CFRA, a Wall Street research firm, concluded in a report.
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