The major U.S. indexes experienced a sharp fall on Dec 4. S&P 500, and Index were down 3.2%, 3.1% and 3.8%, respectively. The small-cap index plunged nearly 4.4%, recording its biggest one-day plunge in more than seven years. Worries surrounding economic slowdown and uncertainties surrounding the U.S.- Sino trade war are among the likely factors behind the plunge
This marks a sharp reversal from Dec 3 when Wall Street rallied, following the trade truce between Washington and Beijing in the recently concluded G-20 summit in Argentina. Dow Jones Industrial Average gained 1.1% on the day while S&P 500 and Nasdaq were up 1.1% and 1.5%, respectively.
Trade War Fears Still Loom
The tweet from President Trump did not help the stock market on Dec 4. He tweeted, “President Xi and I want this deal to happen, and it probably will,” Trump tweeted. “But if not remember… I am a Tariff Man.” This further dented investors’ confidence. Steel and aluminum tariffs have significantly increased the cost of raw materials. Also, it has become difficult on part of companies to make policy decisions due to uncertainties surrounding the trade war (read: Trump-Jingping Truce to Boost These ETFs).
Flattened Yield Curve
Gap between short- and long-term yields have been narrowing this week. When the short-term yields approach long-term yields, it raises uncertainty about the immediate future. On Dec 3, the gap between the two-year and 10-year Treasury yields narrowed to its lowest level in a decade, falling below 0.15 percentage points. However, the gap narrowed further on Dec 4. Currently, the difference is the smallest since just before the Great Recession. This might force the Fed to rethink its pace of rate hikes (read: What Caused Huge Outflows in Regional Bank ETFs in November).
Narrowing of the yield curve also cuts down the