Dow Stumbles as Strategist Warns of Stock Market ‘Death Spiral’

Journalist:
Josiah Wilmoth @Y3llowb1ackbird
August 28, 2019

The Dow stumbled toward a losing session on Wednesday after President Trump appeared to double down on his controversial trade war strategy ahead of new tariffs scheduled for this weekend.

Meanwhile, one Wall Street strategist warns that the stock market could be on the cusp of entering a nauseating “death spiral.”

Dow Eyes Second Straight Loss

The Dow Jones Industrial Average and other bellwether indices continued to bleed this morning after Tuesday’s early rally fell short.

As of 9:33 am ET, the Dow had lost 96.46 points or 0.37% to decline to 25,681.44.

The Dow declined for a second straight session on Wednesday. | Source: Yahoo Finance

The S&P 500 slid 10.41 points or 0.36%, dropping the large-cap index to 2,858.

The tech-heavy Nasdaq declined 48.88 points or 0.62% to 7,778.06.

Trump Defends China Strategy as Tariff Deadline Looms

Stocks fell as the trade war crept toward another crucial deadline without a market-friendly resolution.

Both the White House and Beijing plan to impose new tariffs on one another in just four days.

President Trump had appeared to soften his hardline stance on China earlier in the week, stoking optimism that he might delay those tariffs further to bolster a panicky stock market.

However, Trump defended his trade war strategy in a Wednesday morning tweet, lashing out at the “free and interesting advice” he had received from “people who have tried to handle it before and failed miserably.”

“We are doing very well with China,” Trump protested. “This has never happened to them before!”

‘Death Spiral’ Awaits Stock Market Once Recession Strikes

Meanwhile, the US economy’s recession alarms continue to blare.

This morning, the main yield curve – which measures the spread between the yield on the 10-year and 2-year Treasury bonds – plunged to negative 6 basis points, its worst mark since the financial crisis.

The gap between the yield on the 2-year Treasury bond (blue) and 10-year note (orange) widened on Wednesday morning. | Source: TradingView

The 30-year Treasury note also slid to 1.906%, a new record low.

Add in troubling housing and manufacturing data, and it’s easy to see why perma-bears like Gluskin Sheff chief economist David Rosenberg have already begun to gloat.

NorthmanTrader strategist Sven Henrich warns that if a recession does set in, the stock market risks succumbing to a vicious death spiral.

If a death spiral strikes the stock market, it could force the Dow below the 20,000 level. | Source: Yahoo Finance

How vicious? Henrich believes the S&P 500 could careen as low as 2,100 – more than 25% below Tuesday’s close at 2,869.16.

If “central banks lose control and we actually do go into a global recession… it can head all the way down to 2,100 on the S&P,” Henrich told CNBC

A comparable pullback would batter the Dow below the 20,000 level – a mark it hasn’t traded below since early 2017.

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

Last modified (UTC): August 28, 2019 13:39

Josiah Wilmoth @Y3llowb1ackbird

Josiah is the US Editor at CCN, where he focuses on financial markets. He has written over 2,000 articles since joining CCN in 2014. His work has also been featured on ZeroHedge, Yahoo Finance, and Investing.com. He lives in rural Virginia. Follow him on Twitter @y3llowb1ackbird or email him directly at josiah.wilmoth(at)ccn.com.