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Aug. 5, 2019, 4:36 p.m. EDT

Dow ends nearly 770 points lower as intensifying trade tensions trigger stock rout

Treasury yields extend drop as investors seek havens

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By William Watts, MarketWatch , Andrea Riquier


AFP/Getty Images

Stocks suffered their biggest one-day decline of 2019 on Monday as China allowed its currency to fall to a more-than-10-year low versus the dollar after President Donald Trump rattled markets by announcing additional tariffs on Chinese goods late last week.

/zigman2/quotes/210599714/realtime SPX 2,986.20, -11.75, -0.39%

Stocks ended off of session lows, which had seen the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.95%  drop by more than 900 points, but still suffered sharp losses. The Dow ended the day down 767.27 points, or 2.9%, at 25,717.74 , while the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.39%  declined 87.31 points, or 3%, to close at 2,844.74. The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.83%  shed 278.03 points to finish at 7,726.04, a decline of 3.5%, as China-sensitive tech stocks came under pressure.

The rout marked the biggest one-day selloff, in percentage terms, for the Dow since Dec. 24 and the biggest drop for the S&P 500 and Nasdaq since Dec. 4. The drop marked the lowest close for the S&P 500 and Nasdaq since June 6 and the lowest finish for the Dow since June 5. It left the S&P 500 off 6% from its record close set on July 26, while the Nasdaq is off 7.3% from its all-time closing high set the same day and the Dow has pulled back 6% from its July 15 record finish.

The steep selloff came just one trading day after the S&P 500 and Nasdaq had their biggest weekly declines of 2019.

Read: China-sensitive stocks slide sharply as yuan decline adds to trade conflict fears

Until last week, market participants had been able to “compartmentalize” the U.S.-China trade war, said Art Hogan, chief market strategist at National, in a phone interview. Investors were aware of the continued trade tensions, but were reassured that negotiations were continuing and that neither side was prepared to escalate, he said.

See: What a falling Chinese yuan means for the stock market and the trade war

That changed Thursday, when Trump announced 10% tariffs on an additional $300 billion of imports from China to take effect on Sept. 1, and was compounded when China allowed the yuan to drop.

“The escalation of the U.S.-China trade war puts us in a place where it’s almost impossible to calculate the collateral damage,” Hogan said. That’s likely to continue to cast a cloud over the market unless there are signs of a de-escalation.

Stocks extended early losses after the Institute for Supply Management said its nonmanufacturing, or services, index fell to 53.7% in July from 55.1% in June — marking a slowdown in growth. The reading was the lowest since August 2016. A reading of more than 50 indicates expansion in activity.

China’s yuan traded recently at 7.0975 to the dollar in offshore trade /zigman2/quotes/210561989/realtime/sampled USDCNH +0.0099% , after breaching the 7 level — long referred to by market watchers as a “line in the sand.” The Wall Street Journal , citing data from Refinitiv, said the yuan fell as much as 1.9% to a record offshore low of 7.1087 in Hong Kong on Monday. In mainland trade /zigman2/quotes/210561991/realtime/sampled USDCNY 0.0000% , the yuan traded at more than 7 per dollar for the first time since 2008.

Trump, in a Monday-morning tweet, accused China of currency manipulation and said the Federal Reserve should “listen”:

Meanwhile, expectations for a half-point interest-rate cut by the Fed when policy makers meet in September continued to rise Monday, with traders reflecting almost even odds of a half- or quarter-point trim.

See: Market thinks odds for half-point Fed cut have soared, though economists have their doubts

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US : Dow Jones Global
26,770.20
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Volume: 293.61M
Oct. 18, 2019 5:08p
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/zigman2/quotes/210599714/realtime
US : S&P US
2,986.20
-11.75 -0.39%
Volume: 1.99B
Oct. 18, 2019 5:08p
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/zigman2/quotes/210598365/realtime
US : U.S.: Nasdaq
8,089.54
-67.31 -0.83%
Volume: 1.82M
Oct. 18, 2019 5:16p
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/zigman2/quotes/210561989/realtime/sampled
US : Tullet Prebon
7.0726
+0.0007 +0.0099%
Volume: 0.0000
Oct. 18, 2019 4:59p
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/zigman2/quotes/210561991/realtime/sampled
US : Tullet Prebon
7.0817
0.0000 0.0000%
Volume: 0.0000
Oct. 18, 2019 11:44a
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