US stocks in major sell-off on worsening trade tensions

The Dow Jones Industrial Average fell hard Tuesday -- at one point more than 600 points -- as investors gauged the possibility of heightened trade tensions between the world's two biggest economies.

It wasn't just the blue-chip index: The S&P 500 and the tech-heavy Nasdaq Composite also closed sharply lower. However, all three major averages managed to finish off the session lows.

Wall Street's concerns, which drove the sell-off, stem from tweets by President Trump over the weekend and on Monday that the pace of trade talks between Washington and Beijing were not advancing quickly enough and that he intended to increase tariffs to 25 percent from the current 10 percent on $200 billion of Chinese goods, a move he said he would take Friday. On Monday, Trump tweeted that the U.S. loses $500 billion a year to China. The American negotiators also said their Chinese counterparts were walking back commitments on trade that they had earlier agreed upon.

Despite the new tariff threat from Trump, the Chinese government said Tuesday that Vice Premier Liu He will visit Washington this week for trade talks.

The market's volatility, which was at its most extreme level since Jan. 23, the past two sessions signals a psychological evolution in Wall Street's mentality, according to Putri Pascualy, managing director for PAAMCO.

“Trade war concerns have ebbed and flowed in the last eighteen months, that part isn’t new,” he said. “What is new is market reaction. Previously investors happily shrugged trade risk, citing growth as a reason for bullishness. These days, risk factors aren’t being shrugged off so easily. The math on risk premia for multiple asset classes have changed.”

Some 83 percent of the companies in the S&P 500 have reported quarterly results, with just over three-quarters beating earnings estimates.  Earnings from January through March are up almost 2 percent from a year ago, well ahead of forecasts for a 2.3 percent decline.

Some analysts saw opportunities in the session's stomach-churning plunge.

“Investor complacency finally caught up with the market as a smooth ride to a trade agreement was all but priced in prior to this week,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said.

“Unfortunately, real life isn’t as simple as that and we’re running into issues as we get closer to the end of trade negotiations. This will likely prove a buying opportunity for those who have cash to put to work, but the volatility that we had been telling our clients to expect is now back.”

Ticker Security Last Change Change %
I:DJI DOW JONES AVERAGES 38647.1 -65.11 -0.17%
SP500 S&P 500 5433.74 +12.71 +0.23%
I:COMP NASDAQ COMPOSITE INDEX 17667.559562 +59.12 +0.34%

Mike Loewengart, vice president at E*TRADE Financial, urged investors not to panic -- despite the Dow flirting with a 3 percent decline.

"While a decline of 500 points or more can be a bit hair-raising, it's crucial to keep in mind that we’re only talking about a few percentage points, which is a very normal move for the market," he said. "Ebbs and flows are natural and shouldn’t let investors react emotionally.  We’ve had one heck of a bullish ride so far this year so it makes sense that the bears out there would latch on to the negative trade talk coming out of the Oval Office.

"But there are far more fundamental realities to keep in mind that overshadow Trump tweets:  First, we’ve just had a very strong earnings season.  Second, the employment situation is outstanding.  And third, believe it or not, economies outside the U.S. are actually showing some serious signs of life.  So we certainly all want this trade war over with, but investors can let the fundamental strength of the economy give them the confidence to see beyond near-term issues."

Crude oil prices fell more than 1 percent on concerns that a continuation of the U.S.-China trade conflict will not be resolved and, thus, hampers global economic activity. West Texas Intermediate, the benchmark U.S. crude, settled at $61.40 per barrel.

The yield on the 10-year Treasury slipped to 2.45 percent.


China’s Shanghai Composite closed up 0.69 percent, the Hang Seng was higher by 0.52 percent and Japan’s Nikkei 225 fell 1.51 percent.

Britain’s FTSE 100 was off by 1.05 percent, France’s CAC 40 declined 0.81 percent and Germany’s DAX retreated by 0.72 percent.