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Wave of selling swamps Wall Street; Dow slides nearly 800 points

Wave of selling swamps Wall Street; Dow slides nearly 800 points
Lack of clarity about the U.S.-China trade truce and fears about future U.S. economic growth contributed to trading jitters. Above, the New York Stock Exchange. (Richard Drew / Associated Press)

Stocks slumped on Wall Street on Tuesday as traders felt anxious about the economy and worried that the United States and China made less progress than originally thought on defusing their trade war. Bond prices surged, sending yields sharply lower as investors turned to lower-risk assets.

The Dow Jones industrial average fell nearly 800 points. The yield on the benchmark 10-year Treasury note declined to its lowest level in three months.

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The wave of selling more than erased the market's gains from Monday, when stocks rallied after the Trump administration said the United States and China agreed to a temporary truce in their trade dispute. Investors' confidence in that truce faltered Tuesday, contributing to renewed fears that the disagreement between the two economic powerhouses could slow the global economy.

“This trade issue is the big overhang — the biggest ceiling, if you will — to keeping the markets from moving higher,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab.

Technology companies, banks and industrial firms accounted for much of the broad sell-off. Utility stocks rose. Smaller-company stocks fell more than the rest of the market.

Big drops by Boeing and Caterpillar, major exporters that would stand to lose much if trade tensions persist, weighed on the Dow.

The bond market signaled its concerns as the gap between two-year and 10-year Treasurys reached its narrowest difference since 2007. The 10-year yield is still higher but not by much.

When yields for long-term bonds drop lower than yields for short-term bonds, it's what economists call an “inverted yield curve.” It indicates that investors are forecasting a weaker economy and inflation in coming years. An inverted yield curve has also preceded each recession of the last 60 years, though sometimes by more than a year.

“You have the drop in bond yields and the implications on growth going forward,” said Willie Delwiche, investment strategist at Baird. “The bigger issue is you have this unwind from yesterday's rally.”

The Standard & Poor’s 500 index dropped 90.31 points, or 3.2%, to 2,700.06. The Dow slid 799.36 points, or 3.1%, to 25,027.07, more than erasing its 488-point gain from the previous two trading days. Earlier on Tuesday, it was down as much as 818 points.

The technology-heavy Nasdaq composite sank 283.09 points, or 3.8%, to 7,158.43.

Small-company stocks, which investors see as more risky than large multinationals, fell more than the rest of the market. The Russell 2000 index declined 68.21 points, or 4.4%, to 1,480.75.

The sharp turn in the markets followed a strong rally Monday fueled by optimism over the news that President Trump and his Chinese counterpart, Xi Jinping, had agreed at the Group of 20 summit over the weekend to a 90-day stand-down in the two nations' trade war.

But the market's optimism faded Tuesday as questions arose about the scant details out of the Trump-Xi talks and skepticism grew that Beijing will yield to U.S. demands anytime soon.

“The actual amount of concrete progress made at this meeting appears to have been quite limited,” Alec Phillips and other economists at Goldman Sachs wrote in a research note.

Delwiche echoed those doubts.

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“The sense is that there's less and less agreement between the two sides about what actually took place,” Delwiche said. “There was a rally in the expectation that something had happened. The problem is that something turned out to be nothing.”

Moody's Investors Service suggested Tuesday that the United States and China remain far from resolving their dispute.

“Narrow agreements and modest concessions in their ongoing trade dispute will not bridge the wide gulf in their respective economic, political and strategic interests,” Moody's analysts wrote in a report.

The trade war has rattled markets in recent months as signs emerged that it has begun affecting corporate profits. That has stoked traders' fears that if it lasts much longer, it could further weigh on global economic growth.

“There are plenty of reasons to believe that growth in either the economy or the markets is going to soften next year,” Frederick said.

The jitters helped drive demand for government bonds Tuesday, pushing prices higher. The yield on the 10-year Treasury note fell to 2.91% from 2.99%, a large move. The slide in bond yields, which affect interest rates on mortgages and other consumer loans, weighed on bank stocks. Citigroup shares fell 4.5% to $62.26.

Chipmakers were among the biggest decliners in a technology sector slide. Advanced Micro Devices dropped 10.9% to $21.12, and Micron Technology slid 7.9% to $36.88.

Home builders lost ground after luxury home builder Toll Bros. issued a cautious assessment of the housing market. Toll's shares fell 1.6% to $32.99.

Apple slid 4.4% to $176.69 after HSBC analysts downgraded the consumer electronics giant, citing the possibility that iPhone volume and value growth may moderate because of a saturated mobile phone market.

United Parcel Service slumped 7.4% to $106.77, and FedEx dropped 6.3% to $215.52. Morgan Stanley analysts said in a note that the market was underestimating the challenge those companies would face from Amazon Air.

Oil prices rose ahead of an OPEC meeting scheduled for Thursday, where members are expected to agree to cut output in 2019. Benchmark U.S. crude rose 0.6% to $53.25 a barrel in New York. Brent crude, the international standard, rose 0.6% to $62.08 a barrel in London.

Wholesale gasoline rose 0.8% to $1.44 a gallon. Heating oil rose 0.7% to $1.90 a gallon. Natural gas climbed 2.7% to $4.46 per 1,000 cubic feet.

The dollar weakened to 112.82 yen from 113.69 yen. The euro was little changed at $1.1342. The British pound fell to $1.2716 from $1.2728.

Gold rose 0.6% to $1,246.60 an ounce. Silver rose 1% to $14.64 an ounce. Copper fell 1.8% to $2.78 a pound.

U.S. stock and bond markets will be closed Wednesday in observance of a national day of mourning for former President George H.W. Bush.

3:05 p.m.: This article was updated with closing prices, context and analyst comments.

1 p.m.: This article was updated with the close of markets.

11:05 a.m.: This article was updated with market prices, context and analyst comments.

10:45 a.m.: This article was updated with more recent market movements and background information.

9:40 a.m.: This article was updated with more recent market movements.

This article was originally published at 7:30 a.m.

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