U.S. stocks surged on Monday following the G-20 Summit held in Buenos Aires over the weekend. Despite the short-lived news of trade war tensions settling, markets quickly plunged the next day, marking the fourth worst decline in history.
On Tuesday, the Dow Jones Industrial Average fell sharply by 799.36 points or 3.1%. Tuesday’s bearish market erased the 420 point rally on Monday after a major selloff. The Nasdaq Composite fell by 283 points or 3.8% while the S&P 500 Index fell by 90.3 points or 3.2%.
Tech stocks led the major decline on Tuesday, as Amazon.com Inc. (NASDAQ: AMZN) fell by 5.8%, dragging down the markets. Apple (NASDAQ: AAPL) fell by 4.4%, Netflix (NASDAQ: NFLX) fell by 5.1%, Alphabet (NASDAQ: GOOG) fell by 4.8%, while Facebook saw the smallest loss of 2.2%.
During the G-20 Summit, U.S. President Donald Trump and Chinese President Xi Jinping discussed ongoing trade tensions. The two reached a deal to “reduce and remove” tariffs on vehicles coming into China, settling tariffs at 40%.
Despite the agreement, if the negotiations do not follow through, the planned tariffs of USD 200 Billion on Chinese goods will rise upwards of 25% as opposed to the current 10%. The decision will be on hold for the next three months.
Although, the talks over the weekend at the Summit seemed optimistic on Monday, Trump quickly left investors concerned on Tuesday following his series of tweets. Trump said he would like to reach a deal between him and Xi, but he hinted that the talks may ultimately fail.
“President Xi and I want this deal to happen, and it probably will. But if not remember, I am a Tariff Man.” tweeted Trump.
On the other hand, China’s Commerce Ministry said on Wednesday that the G-20 talks were “very successful” and that it was “confident” a deal could be reached within the next 90 days.
“People are still very concerned about the trade war,” said Dan Suzuki, portfolio strategist at Richard Bernstein Advisors, according to CNN. “Financial markets are increasingly showing signs of fear of a recession.”
The U.S. bond markets also triggered the major sell off yesterday as benchmark 10-year notes sat at 2.91% and 2-year notes quoted at 2.79%, taking the gap between the pair to around 11.5 basis points, marginally higher than yesterday’s 9.5 basis point low but still the smallest in more than a decade, according to The Street.
The shorter-term interest rates moving above some of the longer-term rates could possibly signal a recession incoming, which happened back in 1990, 2001 and 2007, according to a study by Bespoke.
U.S. markets remained closed on Wednesday as part of a National Day of Mourning for the passing of former 41st President George H.W. Bush.