The main Wall Street indexes recorded their biggest downturn after the collapse in October, as investors are worried about a bond market phenomenon, which signals a possible slowdown in the economy. The continued worries about the trade dispute between the US and China also contributed to the Wall Street crash.
The blue-chip index Dow Jones Industrial Average wiped out 799.36 points of its value, or 3.1%, and finished the session at 25,027.07 points, recording its worst day since October 10. At an earlier point of trade, Dow Jones lost more than 800 points of its value.
The broader S&P 500 declined by 3.2% and ended the session at 2,700.06 points. Financial companies were worst performing, wiping out 4.4% of their value. The utility sector alone recorded growth of a modest 0.16%.
The technology index Nasdaq Composite declined 3.8% and ended at 7,158.43 points.
The yield on 3-year US bonds surpassed yields on 5-year Treasuries. The inversion of the yield curve, where short-term bond yields are above those of long-term bonds, signals for recession, although this often happens years after the first signal.
The indexes reached their lowest level for the day after Jeffrey Gundlach, CEO of Doubleline Capital, told that the inversion is a signal of the “impending weakening” of the economy.
On the bond markets, the closely-watched spread between yields on 2-year US government bonds and 10-year bonds remains positive but shrinks to just 10 basis points. The yields on 10-year government bonds fell to 2.896%, and 30-year bonds fell to 3.14%.
In currency markets, the dollar index, which measures the value of US dollars against a basket of six major currencies, declined by 0.6% to 96.98 points.
The US-China trade war
Doubts about the agreement between the US and China again caught investors after the rally in the previous session.
Last weekend, the United States and China have agreed on a 90-day ceasefire in trade war to continue negotiations. The leaders of both sides met at official dinner during the G20 summit in Argentina. The news pushed up the indices on Monday, with Dow adding more than 300 points.
But disagreements over when the ceasefire will create confusion. The US President Donald Trump’s Economic Policy Advisor Larry Kudlow told on Monday that it would start on January 1, but later the White House published a corrected statement that the 90-day reconciliation period is running from December 1st.
In a series of tweets on Tuesday, Trump said the two sides would reach a deal if possible.
“We are either going to have a REAL DEAL with China or no deal at all – at which point we will be charging major Tariffs against Chinese product being shipped into the United States. Ultimately, I believe, we will be making a deal – either now or into the future. China does not want Tariffs”, wrote Donald Trump on Twitter.