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Dow Jones wiped out nearly 800 points because of inversion of the yield curve

The inversion of the bonds yield curve caused strong depreciation of the Wall Street indexes

Dow Jones fall

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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.

Dow Jones index

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.

The J.P. Morgan Chase, Citigroup, and Bank of America, together with Regionals Financial, Citizens Financial and Capital One declined by more than 4%. Citigroup and Morgan Stanley reached their lowest level in 52 weeks. SPDR Regional Banking ETF wiped out 5.5% of its value and ended 20% below its 52-week high, also marking its worst day since March 2017.

Traded volumes rose on Tuesday. More than 159 million shares of the SPDR S&P 500 ETF (SPY) were sold during the day with a 30-day average of 110.5 million. The US markets will be closed on Wednesday for the funeral of former President George H. W. Bush.

On Tuesday, the export-oriented companies were the worst performing with Caterpillar wiping out 6.93%, Boeing dropping by 4.85% and DowDuPont’s stocks decreasing by 4.51%. The technology giants were also affected by the uncertainty in US-China trade relations, which led to a decrease in the stocks. Intel dropped by 4.75%, Apple decreased by 4.40% and Microsoft wiped out 3.18%.

The leading provider of advanced mixed-signal optics products Emcore reported revenues decrease of 13% YoY but climbed 42% from the last quarter. The company’s gross profit fell on a non-GAAP basis to 4.56 million USD from 10.77 million USD, and the company swung to an operating loss of 3.5 million USD from a gain of 3.33 million USD. The gross margin was 18.1%, up from last quarter’s 7.3%. Meanwhile, the Chief Financial Officer Jikun Kim announced leaving the company to tend to personal obligations. He is expected to serve until December 31 and Emcore’s launched an external search to identify a replacement.

The US information technology company Hewlett Packard Enterprise reported earnings of 0.45 USD per share on revenue of 7.95 billion USD, against analysts estimates for 0.43 USD per share on revenue of 7.84 billion USD. HP Enterprise segments Hybrid IT and Intelligent Edge revenues were above estimates, while financial services were below analysts’ estimates. The cash flows of the company during the period was 1.3 billion USD, which is 0.4 billion USD higher against the same period last year.

Marvell Technology Group earnings were stronger than what analysts were calling for in their consensus estimate. For its fiscal third quarter, the company said that its earnings tallied up to 0.33 USD per share on an adjusted basis. Marvell Technology added that its revenue for the period reached 851 million USD, which marked a 38% gain compared to its sales from its third quarter of fiscal 2017.