Trade turmoil wipes out a chunk of the stock market's recent rally

The Dow was recently down just 70 points, or 0.3%. That represents a sharp recovery from a loss of as much as 471 points in early trading. The S&P 500 and Nasdaq also slashed their losses, with each down around half a percentage point. Investors are trying to make sense of President Donald Trump’s surprise threat on Sunday to impose higher tariffs on China. The sudden escalation of US-China trade tensions initially dealt a major blow to investors’ expectations that Washington and Beijing would reach a trade deal in the near term. Trump’s threats raise the risk of a prolonged fight between the world’s two largest economies. But some analysts say the odds still favor a US-China trade deal. “It would be a real surprise if this does more than delay an agreement that both sides still seem to want,” Christopher Smart, Head of Barings Investment Institute, wrote in a note to clients. Monday is just the latest time that US stocks have recovered from an early morning freakout. In fact, the S&P 500 managed to close higher during half of the prior eight times it plunged 1% or more at the open, according to Bespoke Investment Group. ‘Shocking escalation’ For the year, the S&P remains 18% higher; the Nasdaq has gained about 22%. The VIX, a market volatility index, jumped to its highest level since January before retreating. “A big underpinning of the rally was this consensus that a trade deal with China would eventually get done,” said Michael Block, market strategist at Third Seven Advisors. “This tweet may be a tactic but it has bulls unglued and playing what if.” World markets suffered sharper losses as investors express concern about how tariffs and trade uncertainty will impact China’s already-slowing economy. China’s Shanghai Composite Index (SHCOMP)

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