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Dow Tumbles 500 Points Because the Market Wasn’t Ready for Trade Talks to Fall Apart

The Dow Jones Industrial Average just keeps sliding as investors weigh the possibility that the U.S. and China won’t reach a trade deal.
The Dow has dropped 501.45 points, or 1.9%, to 25,937.03, while the S&P 500 has fallen 1.9% to 2877.59 and the Nasdaq Composite has slumped 2.2% to 7947.24.
There’s no way to sugarcoat the problems for the market that would be created if President Donald Trump expands tariffs on China—and the market certainly isn’t priced for it. “The news comes at a time when the U.S. equity market has already become vulnerable to bad news again (and more at risk for a correction in the months ahead) due to excess euphoria among institutional investors and overvaluation,” RBC Capital Markets strategist Lori Calvasina wrote in a note yesterday. “We see some eerie similarities between current conditions in the stock market and those that preceded the S&P 500’s peaks in January and September on our sentiment and valuation models. We also think a trade deal with China has been widely anticipated by investors, and a key contributor to the early 2019 rally in U.S. equities. In this context, we see the weekend’s developments as a negative catalyst for the market, not only because of where investor expectations have been regarding the deal, but because of the downward earnings revisions that are likely to occur if the tariffs are expanded.”
In other words, it could be a truckload of trouble for stocks. The one thing that might keep the selling from becoming a bloodbath? The Federal Reserve. “IF the talks fall through, it will cast the markets back into the big ‘unknown’ and the recent joy fest will come to a halt,” writes independent strategist Ian Winer. “If the Fed turns even more dovish (and we all know the President and advisors are hounding them to move this direction) then that liquidity should keep things from unwinding too fast.”

1 comment:

  1. Stocks are a way of showing how people will react to certain things being put into law. One of those important aspects is tariffs. Anytime there is tariff talks it seems that the markets always decline.