NEW YORK – United States stocks plunged, with the Dow Jones Industrial Average tumbling more than 800 points, as a litany of concerns wiped out the rally in risk assets.
Trade-sensitive shares sank as angst mounted that the U.S. and China made no meaningful progress on the trade front this weekend. Financial shares got hammered as the yield curve continued to flatten, with the latest nudge from a hawkish comment by a Federal Reserve official. Losses accelerated and trading volumes in S&P 500 futures spiked after contracts for broke below their 200-day moving average. Adding to the risk aversion was news that U.K. Prime Minister Theresa May’s push to avoid a so-called “hard Brexit” may be at risk.
“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 – it feels lied to,” said Michael Antonelli, a managing director at Robert W Baird & Co. “Then a pile of negative Brexit news, Williams starts to ramp up hawkish talk, then we have our yield curve acting like it got run over and boom, we puke.” Williams
Treasury Secretary Steven Mnuchin and President Donald Trump’s top economic adviser, Larry Kudlow, dialed back expectations and added qualifiers when asked about the outcome of talks between President Donald Trump and Chinese President Xi Jinping. Kudlow said in a television interview that the White House doesn’t yet have a deal with China to reduce tariffs on U.S.-made cars. The statement was a reversal from a tweet by the president, who said over the weekend that “China has agreed to reduce and remove tariffs on cars coming into China from the U.S.” Officials in Beijing declined to comment on the tweet and have not confirmed such an agreement.
“Yes, there is a halt in tariffs,” said Delores Rubin, senior equities trader at Deutsche Bank Wealth Management. But “we haven’t resolved anything yet.”
In the Treasury market, all eyes remain on the yield curve after three-year yields climbed above those of their five-year peers on Monday, potentially foreshadowing the end of the Federal Reserve’s tightening campaign. The more closely watched part of the curve — the gap between two-year and 10-year yields – remains upwardly sloped.
“Any breakthroughs on trade also brings the Fed back into the picture,” Dan Skelly, Morgan Stanley equity model portfolio solutions head, said on Bloomberg TV. “If you look at the market the last week or so you saw the market pop on both the dovish Fed – or a perceived dovish Fed, if you will – as well as the trade headlines. And it’s hard to have both, in our opinion. And so these positive updates potentially on trade just bring the Fed back even faster.”
Here are some of the key events investors will be watching this week:
U.S. financial markets are set to close Wednesday for a national day of mourning to honor former President George H.W. Bush. Fed Chairman Jerome Powell’s testimony to Congress scheduled for Wednesday has been canceled. Friday brings the U.S. monthly employment report for November. China November trade data are due on Saturday.
Sarah Ponczek, Vildana Hajric and Luke Kawa are reporters for Bloomberg News.