Monday looked to bring a slight recovery to the Dow Jones Industrial Average, which opened to modest gains that carried the index back toward all-time highs.
But the rally didn’t hold, and by the afternoon, the Dow had careened toward its second straight triple-digit loss.
Shortly before Monday’s closing bell, the Dow had lost 233.77 points or 0.83%. The index currently sits at 27,817.64 – nearly 300 points below its session high.
The Nasdaq and S&P 500 also incurred losses, sliding 0.73% and 1.05%, respectively.
Here are five primary catalysts that may have contributed to the stock market’s sell-off today.
Dismal economic data served as the immediate catalyst for the stock market’s steep plunge.
The US manufacturing sector has struggled to mitigate the damage from the US-China trade war.
Economists expected today’s ISM Manufacturing PMI reading to come in below 50 – indicating another contraction – but the scale of that decline far outstripped analyst fears.
Manufacturing PMI printed a 48.1, missing the forecast of 49.2 by a considerable margin.
While a Manufacturing PMI contraction was expected, it incited renewed recession warnings. This index has now contracted for four straight months.
In the past, this has been a reliable – though by no means ironclad – leading indicator of an economic downturn.
This indicator has produced a number of false positives, but other red flags – including the yield curve inversion earlier in the year – may embolden Dow Jones bears who believe investors had grown irrationally optimistic in recent weeks.
US Manufacturing may be struggling, but the Trump administration doesn’t appear to be ready to cave to China’s tariff rollback demands just to provide the increasingly-insignificant sector with some support.
Commerce Secretary Wilbur Ross told Fox Business that President Trump has “made quite clear” that he’ll hike tariffs on Chinese imports if the Dec. 15 deadline passes without a trade deal.
Well, you have a logical deadline Dec. 15. If nothing happens between now and then, the president has made quite clear he’ll put the tariffs in – the increased tariffs.
He added that the Dec. 15 deadline is well-placed because it shouldn’t interfere with this year’s Christmas shopping season.
It’s great that he has the hammer of December 15 because that’s a real hammer. It won’t interfere with this year’s Christmas. Nobody’s reordering stuff after the 15th of December. Retailers have stocked up, so it’s a very good time if we have to put more tariffs on.
President Trump recently said that the US and China are in the “final throes” of trade negotiations.
Unfortunately for stock market bulls, Axios reported on Sunday that US negotiators aren’t optimistic that a deal will arrive before “year-end at the earliest.”
If Commerce Secretary Ross should be believed, that means the Dec. 15 tariffs will likely take effect as planned.
More than just rankle investors, there’s a very real risk that tariff hikes make US-China relations a bit more frosty, instead of accomplishing the intended goal of twisting Beijing’s arm.
Finally, all this talk about the trade war’s impact on the Dow Jones obscures an uncomfortable truth: A US-China trade deal might not mean as much as investors think.
According to ING economist Timme Spakman, Trump’s announcement that he would reimpose steel and aluminum tariffs on Brazil and Argentina reveals that the president’s trade deals “are of limited value” and “can be discarded when the political winds shift.”
It’s not the first time Trump has apparently reneged on a deal with a Latin American trade partner. Shortly after negotiating the USMCA trade deal, Trump threatened to impose new tariffs on Mexico unless the United States’ southern neighbor took a harder stance against illegal immigration.
Consequently, the Brazil and Argentina tariffs represent the latest incident in a worrisome pattern, and Spakman concludes that China might be growing skeptical about the outlook for trade relations with the US.
China will be watching this closely and asking itself just how far it wants to go in negotiations with Trump, knowing that a deal could very well be short-lived.
Perhaps investors should take note too.