U.S. stocks veered sharply lower in afternoon trading Tuesday, pulling the Dow Jones Industrial Average down 700 points.
The wave of selling erased the market’s gains from a day earlier, when stocks rallied on news that the U.S. and China had agreed to a temporary truce in their trade dispute. Investors’ confidence in that truce appeared to falter Tuesday, contributing to renewed fears about a slowing global economy.
Technology companies, banks and industrial stocks accounted for much of the sell-off as traders moved assets into the relative safety of U.S. government bonds, driving yields sharply lower. Utilities stocks rose. Smaller-company stocks fell more than the rest of the market.
“You have the drop in bond yields and the implications on growth going forward,” said Willie Delwiche, investment strategist at Baird. “The bigger issue is you have this unwind from yesterday’s rally.”
At 2 p.m, ET, The S&P 500 index slid 73 points, or 2.7 per cent, to 2,717. The Dow plunged 690 points, or 2.8 per cent, to 25,130, more than erasing its 488-point gain over the previous two trading days.
The Nasdaq composite lost 226 points, or 3 per cent, to 7,217. The Russell 2000 index of smaller-company stocks gave up 51 points, or 3.3 per cent, to 1,497. The index now has a loss for the year.
Canada’s main stock index also fell on Tuesday, led by healthcare shares, while market sentiment was hurt by fading hopes of a swift resolution to the U.S.-China trade dispute.
The Toronto Stock Exchange’s S&P/TSX composite index was down 197.31 points, or 1.29 per cent, at 15,077.67.
The healthcare sector fell 3.3 per cent, the most among the 11 major sectors.
Aphria Inc. was down 17.2 per cent. The cannabis producer defended its Latin American operations from claims in a short-seller report on Monday that the company had overpaid for assets.
The financials sector edged down 1.7 per cent. Bank of Montreal fell 3.5 per cent, after Canada’s fourth-biggest lender reported fourth-quarter earnings, ending a mixed earnings season for Canada’s biggest banks.
Toronto-Dominion Bank lost 1.4 per cent, while Bank of Nova Scotia dipped 1.6 per cent.
The energy sector dropped 1.3 per cent as U.S. crude prices pared gains.
Encana Corp. lost 3.6 per cent, while Crescent Point Energy Corp. was down 2.3 per cent.
The sell-off came ahead of Wednesday’s closure of U.S. stock and bond markets in observance of a national day of mourning for former President George H.W. Bush.
The sharp turn in the markets followed a strong rally on Monday fueled by optimism over the news that President Donald Trump and his Chinese counterpart Xi Jinping had agreed at the G-20 summit over the weekend to a temporary, 90-day stand-down in the two nations’ escalating trade dispute.
But the market’s optimism faded Tuesday amid published reports questioning the scant details out of the Trump-Xi talks and growing skepticism that Beijing will yield to U.S. demands anytime soon.
“The actual amount of concrete progress made at this meeting appears to have been quite limited,” Alec Phillips and other economists at Goldman Sachs wrote in a research note.
Delwiche echoed those doubts.
“The sense is that there’s less and less agreement between the two sides about what actually took place,” Delwiche said. “There was a rally in the expectation that something had happened, the problem is that something turned out to be nothing.”
The trade dispute has rattled markets in recent months as signs emerged that it has begun affecting corporate profits. That’s stoked traders’ fears that if it drags much longer it could further weigh on global economic growth.
The jitters helped drive demand for government bonds Tuesday, pushing prices higher. The yield on the 10-year Treasury note fell to 2.91 per cent from 2.99 per cent late Monday, a large move. The slide in bond yields, which affect interest rates on mortgages and other consumer loans, weighed on bank stocks. Citigroup fell 5.4 per cent to $61.63.
Chipmakers were among the biggest decliners in a technology sector slide. Advanced Micro Devices dropped 9.4 per cent to $21.49, while Micron Technology lost 6.4 per cent to $37.47.
Homebuilders fell after luxury homebuilder Toll Brothers issued a cautious assessment of the housing market. Toll’s shares rose 0.4 per cent to $33.67, recovering from a morning sell-off. Hovnanian Enterprises led most builders lower, giving up 10.3 per cent to $1.10.
Apple lost 3.7 per cent to $177.99 after the consumer electronics giant was downgraded by HSBC analysts, citing the possibility that iPhone volume and value growth may moderate due to a saturated mobile phone market.
Discount retail chain Dollar General slid 8.2 per cent to $102.54 after the company reported weak quarterly results.
AutoZone climbed 5.6 per cent to $870.65 after the auto parts retailer delivered third-quarter earnings that exceeded analysts’ forecasts.
Oil prices headed higher ahead of an OPEC meeting on Thursday, where members are expected to agree to cut output in 2019. Benchmark U.S. crude rose 0.6 per cent to $53.27 per barrel in New York. Brent crude, the international standard, added 0.9 per cent to $62.22 per barrel in London.
The dollar weakened to 113 yen from 113.69 yen late Monday. The euro strengthened to $1.1349 from $1.1342. The British pound fell to $1.2727 from $1.2728 after a top official at the European Union’s highest court advised that Britain can unilaterally change its mind about leaving the EU as scheduled on March 29.
Markets in Europe also fell. Germany’s DAX lost 1.1 per cent, while France’s CAC 40 dropped 0.8 per cent. The FTSE 100 index of leading British shares slid 0.6 per cent.
Major indexes in Asia finished mixed. Japan’s Nikkei 225 index gave up 2.4 per cent and the Kospi in South Korea lost 0.8 per cent. Hong Kong’s Hang Seng added 0.3 per cent. The S&P ASX/200 in Australia gave up 1 per cent.
The Associated Press and Reuters