Dow Crashes 473 Points as Bond King Warns of Stock Market Meltdown

Journalist:
May 7, 2019

By CCN: The Dow and broader U.S. stock market plunged anew on Tuesday, as President Trump’s latest tariff gambit triggered an extreme bout of volatility for Wall Street.

Dow, S&P 500 Race Into Meltdown Mode

All of Wall Street’s major indexes reported massive declines on Tuesday, mirroring a volatile pre-market for Dow futures. The Dow Jones Industrial Average bottomed at 25,789.71, having declined 643 points. It would later settle down 473.39 points, or 1.8%, at 26,965.09.

Dow Jones Industrial Average plummets as Trump’s tariff war rattles markets. | Chart via Yahoo Finance.

The broad S&P 500 Index of large-cap stocks plummeted 1.7% to 2,884.05. All 11 primary sectors registered losses.

The technology-focused Nasdaq Composite Index declined 2% to 7,963.76.

A measure of implied volatility known as the CBOE VIX surged for a second straight day, painting an ominous picture of Wall Street’s recovery. VIX, commonly known as the “fear index” gained 33% to 20.63 on a scale of 1-100 where 20-25 represents the historic average. The fear gauge rose by as much as 46% on Monday.

25% Tariffs Coming, Bear Market Already Here: Gundlach

President Trump plays hardball amid signs China is reneging on trade promises. | Source: MANDEL NGAN / AFP

There’s a good chance that President Trump’s tariff threat against China will become reality, according to Jeffrey Gundlach, chief executive of the DoubleLine asset management group.

In an interview with CNBC’s Halftime Report, Gundlach says the 25% tariff bump on Chinese imports “is better than 50% chance” because “both the premier of China and the president of the United States want to come across that they prevailed and didn’t give in.”

On Sunday, President Trump tweeted a new tariff threat against China after one of his top trade advisers informed him that Beijing was reneging on some of its prior commitments. Namely, Beijing is refusing to amend laws that force U.S. companies to give up intellectual property when doing business in China.

The news triggered a nearly 500-point drop in the Dow just after the open on Monday. The index would later pare most of the declines.

Despite the four-month recovery in stock prices, Gundlach believes equities are in a bear market.

“I think that we’re in a late cycle and I think the market can only be termed by the way I look at evolution of market prices as a bear market,” he told CNBC. “The market hasn’t gone anywhere in 15 months.”

The S&P 500 and Nasdaq met the definition of a bear market in December after they fell more than 20% from their prior peak. Both indexes returned to record highs last month.

Click here for a real-time Dow Jones Industrial Average price chart.

Last modified (UTC): May 7, 2019 17:20

Sam Bourgi @hsbourgi

Financial Editor to CCN Markets, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi. Sam is based in Ontario, Canada and can be contacted at sam.bourgi@ccn.com