Stocks slumped on Wall Street Tuesday as traders anxious that the USA and China made less progress than originally thought on defusing their dispute over trade.
The Dow Jones Industrial Average slipped by 2.5pc mid-session on Tuesday, with industrial companies and financials leading the declines. Eastern Time. The Dow plunged 730 points, or 2.8 percent, to 25,095, more than erasing its 488-point gain over the previous two trading days. This has not occurred since 2007. It indicates that investors are forecasting a weaker economy and inflation in coming years. "They're anxious that something pretty serious is going to go wrong within the next, say, six to 12 months, and that's going to tip the economy into recession", says Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities.
European markets closed lower yesterday: London's FTSE fell 0.6per cent, Paris dropped 0.8 per cent and Frankfurt shed 1.1 per cent.
The Dow closed down 799.36 points or, 3.10 percent, at 25,027.07, while the S&P 500 fell 3.24 percent and the Nasdaq Composite slid 3.8 percent, as President Donald Trump stoked trade war fears and a flattening yield curve prompted worries of a recession. Shares of major US banks also took a dive with Citigroup, Morgan Stanley and Capital One bottoming out at 52-week lows.
Boeing and Caterpillar, two major exporters which would have much to lose of trade tensions don't ease, weighed the most on the Dow. Trump previously said the agreement in Buenos Aires would lead to sales of American farm goods and cuts in Chinese auto tariffs, but Beijing has yet to confirm that.
That sent stocks higher on Monday.
Bond prices soared, sending yields lower, as traders shoved money into lower-risk investments.
Yields on two-year and three-year bonds held above the five-year yield for a second day, while the benchmark 10-year yield hit its lowest since mid-September as demand for longer-dated Treasuries rose on bets of an approaching economic slowdown.
Bernstein, a former White House economist, notes that investors are anxious about several factors. Meantime, concerns remain about the impact of Fed tightening against a backdrop of slowing global growth. It's fallen a great deal over the past few months.
Last week, stocks jumped when the Federal Reserve's chairman indicated the central bank could slow the pace of interest rate increases. The falls came on the back of doubts of a trade deal being reached between the U.S. and China.
The big sell-off on Tuesday may have also been a kind of rush for the exits by investors.