Financial markets buckled amid President Trump’s escalating trade war with China, sending U.S. stocks to the biggest drop of the year and sparking a rally in global bonds.
The Dow shed 767 points as the S&P 500 plunged more than 3%. Apple and IBM each fell 5% as all but 10 companies in the U.S. stock benchmark traded lower. The CBOE surged 33%. The 10-year Treasury yield was close to completely erasing the jump that followed Trump’s election. Oil tumbled.
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Rising interest rates and trade war threats are promulgating the rout in equities.
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Caution is key across global markets as investors try to gauge whether the selloff is a harbinger or a blip.
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One VanEck fund had $574 million of outflows, the most since June and almost 40% of its assets.
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Investors are starting to grasp the potential for a protracted conflict between the world’s two largest economies, with a Treasury-market recession indicator hitting the highest alert since 2007. As demand for haven assets spiked, gold made a run toward $1,500 an ounce. Major cryptocurrencies, increasingly seen as a refuge during distressed times, climbed as bitcoin approached $12,000.
“The trade war is now intensifying and it’s possible that a currency war will start as well,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “Neither is good for the global economy and both will hurt equity markets.”
The average expense ratio among the leading 20 is nearly 40 basis points cheaper than what investors paid on average last year.
People’s Bank of China Governor Yi Gang said the nation won’t use exchange rates as a tool in the escalating trade dispute with the U.S. Yet for Trump, the latest decline in the yuan is “called ‘currency manipulation.”’ The American leader also indicated he’d like the Fed to act to counter the Chinese action. Swaps show bets the central bank will ease by 100 basis points by December 2020, a quarter point more than what was priced in after last week’s cut.
The trade war has been a consistent catalyst for market volatility and hopes of a resolution are now being sent even further out in the horizon, according to Mike Loewengart, vice president of investment strategy at E-Trade Financial. While that could continue to challenge portfolios, investors should not make the mistake of trying to time the markets amid the sell-off, he said.
“This too shall eventually pass, and bouts of volatility in recent months have shown this can happen quickly,” said Loewengart.
