The stock market surged on Monday after a 90-day ceasefire of the trade war between the U.S. and China was announced after the G20 Summit, with the hope that it would ratchet down tensions between the two nations in the long term and provide relief for companies that have been feeling the pain from tariffs.
Then investors came to the realization that President Trump’s claims of Chinese concessions in his trade war with China were not actually agreed upon. “We don’t yet have a specific agreement on that”: White House backtracks on China deal:
President Donald Trump’s victory lap on a temporary detente in the trade war with China might be a little premature — and misleading.
In a series of tweets over the weekend, the president celebrated the modest compromise on trade he reached with Chinese President Xi Jinping in Buenos Aires on Saturday in which Trump agreed to temporarily hold off on increasing tariffs on $200 billion of Chinese goods in exchange for China purchasing a still-to-be-defined amount of American-made products.
Trump declared that China had agreed to reduce and remove tariffs on cars coming into China from the US, and he wrote that China intends to “start purchasing agricultural product immediately” from the US.
“Relations with China have taken a BIG leap forward!” he tweeted.
It’s not clear, however, how much Trump’s declarations line up with reality. White House aides and China have told different stories than the one Trump is offering on what exactly was agreed to, and what’s going to happen and when.
“It doesn’t seem like anything was actually agreed to at the dinner and White House officials are contorting themselves into pretzels to reconcile Trump’s tweets (which seem if not completely fabricated then grossly exaggerated) with reality,” one JPMorgan analyst wrote in a note to clients reported by CNBC’s Carl Quintanilla.
“This is a situation that’s played out over and over again throughout Trump’s presidency — he makes a declaration, only to leave aides, his counterparts, and reporters scrambling to figure out what the truth actually is.”
There’s also a different version of facts coming out of China about what actually happened. As the Washington Post reports, state media outlets on Monday made no mention of Trump’s 90-day time frame or reducing tariffs on US cars. They didn’t offer specifics on buying American-made products, either.
On Tuesday, the Twitter-Troll-in-Chief took to labeling himself “Tariff Man,” and being ready to reinstate his trade war. Since then, the stock market has been roiled. Trump Called Himself A “Tariff Man,” And Then The Market Plunged. Here’s Why.
After President Donald Trump tweeted Tuesday morning about important trade discussions the US is having with China, US markets plunged.
In his tweets, Trump dubbed himself a “Tariff Man” in reference to his use of tariffs as a negotiating tactic with the country’s largest trade partner. “It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN,” Trump said on Twitter.
Investors on Wall Street had been optimistic that the US and China were making progress in avoiding a prolonged trade war when the two countries agreed to a 90-day halt to tariffs during the G20 summit.
But after Trump began tweeting Tuesday, the Dow fell 3.1% and the S&P 500 fell 3.2%. Stock market plunges as Wall Street gives Trump’s China deal another look:
Wall Street was initially encouraged by Trump’s Saturday deal with Chinese President Xi Jinping in which both sides agreed to a 90-day timeout of the US-China trade war. Major United States stock indexes climbed on Monday amid optimism the US and China might strike a deal, with the Dow Jones Industrial Average, which Trump often touts, gaining nearly 300 points.
But after investors had a second day to think about US-China trade relations, they appear to have changed their minds on how optimistic they feel. The Dow plunged on Tuesday, falling nearly 800 points by market close, and the S&P 500 and Nasdaq saw deep declines as well. All three major indexes ended the day down by 3 percent or more.
Trump isn’t the only factor making markets edgy — there are concerns about a potential economic slowdown and the Federal Reserve’s interest rate path as well.
But Wall Street is sending a clear signal that, upon closer inspection, Trump’s trade war détente with China isn’t looking so hot — especially after a string of tweets from the president [Tuesday] morning indicated he has no problem going back to a trade war if a broader agreement isn’t reached in the next three months.
The markets were closed on Wednesday for a national day of mourning for he funeral of former President George H.W. Bush.
On Thursday the stock slide continued. Dow extends deep losses, triggered by uncertainty on U.S.-China trade deal:
After a reprieve for a national day of mourning, U.S. stock markets on Thursday extended an across-the-board rout triggered by signs that the prospect of a U.S.-China trade deal was in jeopardy.
Investor angst was fueled by the arrest of a Chinese executive that further threatened progress on trade, coupled with omens of a recession in the bond market and a steep drop in oil prices.
In morning trading, the Dow Jones industrial average fell more than 750 points, or 3.1 percent. The tech-heavy Nasdaq was down 2.4 percent, pushing deeper into correction territory. Correction is a drop of at least 10 percent from the high. The Standard & Poor’s 500-stock index was off 2.9 percent. By the early afternoon, the losses had eased.
The Dow and S&P 500 have both given up all gains for the year — and are having their worst quarter in seven years.
Elena Popina writes at Bloomberg, It’s the Worst Time to Make Money in Markets Since 1972:
Market statisticians are falling over each other in 2018 to describe the pain being felt across asset classes. One venerable shop frames it this way: Things haven’t been this bad since Richard Nixon’s presidency.
Ned Davis Research puts markets into eight big asset classes — everything from bonds to U.S. and international stocks to commodities. And not a single one of them is on track to post a return this year of more than 5 percent, a phenomenon last observed in 1972, according to Ed Clissold, a strategist at the firm.
In terms of losses, investors have seen far worse. But going by the breadth of assets failing to deliver upside, 2018 is starting to look historic.
Nothing’s working, not large or small-cap stocks in the U.S., not international or emerging equities, not Treasuries, investment-grade bonds, commodities or real estate. Most of them are down, and the ones that are up are doing so by percentages in the low single-digits.
That’s all but unique in history. Normally when something falls, something else gains. Amid the financial catastrophe of 2008, Treasuries rallied. In 1974, commodities were a bright spot. In 2002, it was REITs. In 2018, there’s nowhere to run.
Clissold has a villain: evaporating central bank stimulus, i.e., the Federal Reserve has hiked rates eight times since 2015, and policy makers in Europe and Japan are slowly winding down their accommodative programs.
How much has President Donald Trump’s trade war with China, Canada, Mexico and — well, everyone — cost you? Now we know how much Trump’s trade war has cost your portfolio:
If you’re an investor in the Standard & Poor’s 500, about 6% of your money, according to a new analysis by Bank of America Merrill Lynch.
Or, to put it in terms that all the newly minted “401k millionaires” we all wrote about last spring will understand, about $60,000 if you’ve got a million put away for retirement.
So much for trade wars being good and easy to win.
And now there is an investor yield curve inversion building, the strongest indicator of a coming recession. Business Insider reports, The bond market just flashed a major ‘red flag’ — and it could be signaling a US recession:
On Monday, two- and five-year Treasury yields inverted, meaning the shorter-dated two-year money became more expensive than the later-maturing five-year. The same happened with three- and five-year spreads for the first time in 11 years. Concerns about global growth slowing and higher interest rates, coupled with simmering trade-war tensions, are thought to be behind the inversions.
“Inversion of that curve is the real recession red flag,” said Neil Wilson, the chief market analyst at Markets.com.
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Investors are increasingly concerned, however, by a flattening of the spread between two- and 10-year Treasurys, a more fundamental benchmark of market health. The 10-year Treasury note yield fell about 6 basis points to 2.498% on Tuesday, its lowest since September 13, while the spread between two- and 10-year notes dropped to 0.14%, the flattest level since June 2007, setting the tone for a possible inversion of spreads in the future.
From 1988 to 2008, inversions of the twos and tens were followed by recessions about 24 months later, according to Wells Fargo, cited by CNBC.
The yield curve inverted between the two- and 10-year yield before the recessions of 1981, 1991, 2000, and 2008. It has preceded all nine US recessions since 1955.
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Recessionary pressures could be exacerbated if fears surrounding the US-China trade war are resumed following a 90-day truce, agreed to at the G20 summit in Argentina last week.
So a recession just in time for the 2020 presidential election. Perfect!
UPDATE: The stock market slide continued on Friday. Dow spills nearly 600 points after jobs report disappoints: The Dow Jones industrial average slid as much as 500 points on a disappointing jobs report Friday morning that seemed to cement worries that an economic slowdown is down the road.
CNN reports Why the stock market is freaking out:
From “Tariff Man” tweets and inverting yield curves to conflicting messages from Trump advisersand the arrest of a Chinese executive, there is no shortage of headlines keeping investors awake at night.
After booking its best week since 2011, the S&P 500 plunged 3.2% Tuesday and tumbled again Thursday before staging a massive recovery. Stocks fell sharply on Friday after Trump officials Larry Kudlow and Peter Navarro contradicted each other on trade.
No matter the catalyst, the overarching fear is over just how long the economy has until the next recession strikes. Months? Quarters? Years?
“Markets are fully convinced we are in the last stages of an economic cycle,” Nicholas Colas, co-founder of DataTrek Research, wrote in a note to clients. “Traders are feverishly looking for the dry tinder that will turn a simple short circuit into a full-blown conflagration.”
Signs of worry abound. The Fear & Greed Index, a CNN Business gauge of market sentiment, is flashing “extreme fear.” Germany’s stock market is flirting with a bear market. Oil prices are already there. The VIX volatility index (VIX) has spiked 22% this week. And the S&P 500 is on track for its worst quarter in seven years.
“We’re at a very confusing point for the economy,” said Kristina Hooper, global market strategist at Invesco. “It’s not as predictable as it was last year when growth seemed a lot more potent.”
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Rather than an imminent downturn, investors seem to be preparing for a more treacherous horizon. Economic and profit growth are projected to slow in 2019 and some economists have warned of a recession in 2020.