The Dow Jones Industrial Average notched its third straight triple-digit decline on Tuesday, falling as much as 450 points during its worst sell-off since October.
Here are ten reasons why the stock market performed so miserably today.
Although the trade war has dragged on for more than a year, President Donald Trump and his advisers have habitually maintained that the White House is on the verge of a deal with Beijing.
Trump shocked investors this morning when he broke from that party line, telling reporters that he may wait until after the 2020 US presidential election to finalize a trade agreement.
Hours later, Commerce Secretary Wilbur Ross defended Trump’s sudden strategy shift. He claimed that by waiting until after the election, Trump would take away leverage from Beijing.
He told CNBC:
That takes off the table something that they may think gives them some leverage. Because once the election occurs — and the president seems to be in very good shape for the election — once it occurs and he’s back in, now that’s no longer a distraction that can detract from our negotiating position.
President Trump has long tracked the day-to-day performance of the stock market to gauge the impact of his policies.
Consequently, investors may have harbored hopes that he would seek to calm a fearful Wall Street after this morning’s sell-off proved that markets aren’t enthusiastic about waiting another 12 months for a trade deal.
Much to their chagrin, Trump scoffed that today’s stock market downturn was “peanuts” and would not distract him from holding out for a trade deal that meets his terms.
Many Wall Street analysts believed that Trump’s threat to hike tariffs on Dec. 15 was just a bluff, especially since Washington and Beijing seemed to be on the verge of a deal. This week’s events have upended that forecast.
Yesterday, Commerce Secretary Ross forcefully declared that Trump would raise tariffs if there wasn’t a trade deal in place. Neither Trump nor Ross said anything today to walk back that claim.
The new tariffs target $160 billion worth of Chinese goods, including electronics. That would place severe pressure on Apple, whose products are mostly produced in China.
Apple stock has soared in 2019, rising more than 60%. According to CNBC, Apple and fellow tech giant Microsoft account for 1,100 points of the Dow’s year-to-date rally.
While the Dow has still underperformed the S&P 500 and Nasdaq, AAPL and MSFT have offset weakness in Boeing, the most heavily weighted of the DJIA’s 30 members.
Apple CEO Tim Cook has pleaded for Trump to grant his company a tariff exemption, but it’s not clear whether the president will relent.
Meanwhile, Chinese state media outlet Global Times reports that Beijing plans to blacklist a slew of US companies, placing further pressure on US-China relations.
The blacklist is meant as retaliation for a US congressional bill that calls for sanctions on Chinese government officials involved in the human rights abuses allegedly taking place in China’s Xinjiang region.
The US has already passed legislation condemning China for its handling of the Hong Kong protests. That bill also drew a sharp rebuke from Beijing.
After closing at a 15-month low last week, the Cboe Volatility Index (VIX) has gone ballistic since the start of December.
The VIX, an implied measure of volatility known as the stock market’s “fear gauge,” has soared by roughly 50% since Nov. 26, peaking as high as 17.99 this morning.
That’s still slightly below the historical average of ~19, but it’s remarkable how quickly traders have soured on the market’s outlook.
Investors may be concerned that the stock market will suffer a repeat of last year’s December nosedive, which saw the VIX range as high as 36 on Christmas Eve.
December has historically been a very good month for stocks, with the S&P 500 rising an average of 1.11% over the past 30 years.
Last year, though, the S&P 500 plunged 16% between Dec. 1 and Dec. 24 before mounting a strong recovery to close out the year.
Bears warn that the Dec. 15 tariffs could be the catalyst that sparks a similar decline.
With those tariffs quickly approaching and no trade deal in sight, the “Santa Claus rally” that so many Dow Jones bulls had predicted may not materialize.
And if bears are right that markets have already priced in a trade deal, Wall Street could endure quite the opposite:
Monday’s US manufacturing data missed estimates and confirmed that the tariff-vulnerable sector remains in a technical recession. Tomorrow, the US economy faces another crucial test.
ISM’s non-manufacturing purchasing managers’ index (PMI) will measure the health of the services sector. Economists expect a reading of 54.5, which would indicate a strong expansion.
Last modified: January 22, 2020 11:41 PM UTC