Yesterday’s so-called “relief rally” which had everyone at least mildly skeptical lasted all but one day as mild skepticism turned into all-out fear today with an all-day sell off that brought the Dow crashing down huge 799 points.  It wasn’t just Trump’s remarks about loving tariffs that sent everyone to the exits but also unwanted clarity from the Fed that more rate hikes were likely coming and further uncertainty about the Brexit.  Perhaps the biggest threat though came from the bond yields where the spread between the 10-year and the 2-year T-Bill shrank to its lowest in over ten years, the so-called “yield curve inversion,” which has signaled every recession of the last 50 years.  The good news is that it is not yet a complete inversion but investors are on alert.  It is now obvious that Monday’s ebullience over trade and investor optimism over a resolution to the tariff war faded into the dust today as the market realized yesterday’s celebration was based “more on the headline than on the substance.”  Volume was furious at 9 billion.  Tomorrow the market closes to mourn President Bush and maybe the day off will give everyone a chance to breathe a bit. 

tue  DECEMBER 4, 2018 / 4:29 pm 

Wall Street tumbles, spooked by growth and trade worries

Lewis Krauskopf

DJ:  25,027.07  -799.36       NAS:  7,158.43  -283.09        S&P:  2,700.06  -90.31      12/4

(Reuters) - Wall Street tumbled more than 3 percent on Tuesday, led lower by bank and industrial shares, as the U.S. bond market sent unsettling signs about economic growth and investors worried anew about global trade.  A prominent Federal Reserve official’s comments about the path of interest rate hikes added to the uncertainty for investors, as did setbacks for Britain’s plans to leave the European Union.

The S&P 500 .SPX posted its biggest single-day percentage drop in about two months, giving back some gains from Monday and a week earlier, when the benchmark index tallied its largest weekly percentage gain in nearly seven years.  The small-cap Russell 2000 dropped 4.4 percent, its biggest one-day plunge in more than seven years. 

Investors were focused on U.S. Treasury yields, where the benchmark 10-year yield fell to its lowest point since mid-September. The spread between the 10-year yield over its two-year counterpart also shrank to the smallest in over a decade, a closely watched signal because a so-called yield curve “inversion,” when the two-year yields more than the 10-year bond, preceded all the recessions of the past 50 years.

Part of the curve did invert, with two-year and three-year yields holding above the five-year yield for a second day.  “It’s fears about the inverted yield curve and what that means for the economy and is it a precursor to a recession,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.

The Dow Jones Industrial Average .DJI fell 799.36 points, or 3.1 percent, to 25,027.07, the S&P 500 .SPX lost 90.31 points, or 3.24 percent, to 2,700.06 and the Nasdaq Composite .IXIC dropped 283.09 points, or 3.8 percent, to 7,158.43. 

The New York Stock Exchange and Nasdaq will be closed on Wednesday, for a day of mourning for former President George H.W. Bush, who died on Friday at the age of 94.

Stocks had rallied on Monday following a truce between U.S. President Donald Trump and Chinese President Xi Jinping on their trade dispute following weekend talks in Argentina, but investor optimism over a resolution faded on Tuesday. Trump himself warned he would revert to tariffs if the two sides could not resolve their differences.  “The sell-off that we have seen throughout the day is really about taking a look at the tariff conversation and realizing that nothing has been resolved and that there is still some work to do and some of the euphoria that we felt yesterday was more on the headline than on the substance,” said Delores Rubin, senior equities trader at Deutsche Bank Wealth Management in New York.

Financial shares .SPSY, which are particularly sensitive to bond market swings, dropped 4.4 percent.  The trade-sensitive industrial sector .SPLRCI fell 4.4 percent, with Boeing (BA.N) and Caterpillar (CAT.N) declining 4.9 percent and 6.9 percent, respectively.  The Dow Jones Transport Average .DJT declined 4.4 percent, its biggest one-day percentage drop since June 2016.  Defensive Utilities .SPLRCU eked out a 0.2 percent gain, the only one of the 11 major S&P 500 sectors in positive territory.

In comments on Tuesday, New York Fed President John Williams said the U.S. central bank should expect to continue raising interest rates “over the next year or so” even while it pays close attention to possible risks highlighted by financial markets.  The comments came after those from Fed chair Jerome Powell last week, which lifted stocks as they were interpreted as suggesting a less aggressive path of rate hikes.  “Maybe we’re not going to get as dovish a Fed as some think,” said Joseph LaVorgna, chief economist, Americas at Natixis in New York.

Declining issues outnumbered advancing ones on the NYSE by a 4.24-to-1 ratio; on Nasdaq, a 5.96-to-1 ratio favored decliners.

The S&P 500 posted 40 new 52-week highs and 29 new lows; the Nasdaq Composite recorded 36 new highs and 220 new lows.

About 9 billion shares changed hands in U.S. exchanges, above the 7.7 billion-share daily average over the last 20 sessions.