Dow Drops 237 Points Sparks US Economy Worries

The U.S stock markets fell on Tuesday after investors were overwhelmed by worries about a possible slowdown in the U.S. economy. The Dow Jones Industrial Average slumped 237.92 points and lost the 131-point gain with which it started the day.

Escalating the worries was the fall in yield of the benchmark 10-year note to around 2.26 percent. That was the lowest in 19 months. Yields have an inverse relation to prices. When bonds become costly yield falls.

The S&P 500 fell 0.8 percent and Nasdaq Composite lost 0.4 percent by end of the trading day.

Both the S&P 500 and Nasdaq were trading higher in the early part of the session. The indexes plunged to session lows in the last hour of trading.

Dow Jones index had the consecutive decline for a fifth straight week on Friday that was the longest weekly down streak since the year 2011.

Markets lacking in upside catalysts

Charles Schwab of Randy Frederick said the market is lacking in upside catalysts.

“Any time the buyers step in, the excitement just kind of wears off and fizzle by the end of the day, and we're seeing that again today,” he noted.

That the trade war and resulting uncertainty is pushing investors to safe-haven assets was evident from the benchmark 10-year US Treasury yields dropping to a 19-month low.

Bank shares also dropped amid signals of lower interest rates. Goldman Sachs, Citigroup, J.P. Morgan, Morgan Stanley, and Wells Fargo slipped.

President Donald Trump’s statement that the U.S. was “not ready” to make a deal with China affected the market mood. However, Trump added later that he expects one in the future.

Trump also warned tariffs on Chinese imports could be jacked up “substantially.”

China, on its part, updated via the state-run newspaper that it “would not bend to U.S. demands to change its state-run economy.” The concern of the United States is that China’s state-run companies are seeking the forced surrender of intellectual property from American companies.

Ed Yardeni, president and chief investment strategist at Yardeni Research described Trump as playing a Game of Thrones with both foreign and domestic adversaries.

As the President of the world’s greatest economic power, Trump thought he would clinch lots of deals and benefit the US in short order.

“But the results have been mostly disappointing so far,” he added.

Fed likely to cut rates

Meanwhile, speculation is rife that in spite of the Fed’s aloof stance, the central bank would step in to ease the monetary policy, according to a report by the Financial Times.

“One cut is likely. I would not be surprised if we see two,” said Kristina Hooper, chief global market strategist at Invesco.

The analyst said the probability hinges on the scale of deterioration in the economic data.

“But just the breakdown in relations between the US and China is good for one rate cut,” the analyst added.

In fact, many investors believe that the Federal Reserve will cut U.S. interest rates not once but twice to address concerns of weakening global economic growth fuelled by the U.S.-China trade war.