Dow Swings Below 25,000 Following China’s Trade-War Bombshell

The Dow and broader U.S. stock market swung sharply lower on Wednesday, as investors reacted to a shocking threat from China that could alter the tempo of future trade negotiations with the United States.

Dow Swings Below 25,000; S&P 500, Nasdaq Plunge

All of Wall Street’s major indexes headed for big losses midweek, with the Dow Jones Industrial Average briefly trading below 25,000 for the first time in four months. The blue-chip index declined by as much as 409 points to reach 24,938.24. It eventually settled down 221.36 points, or 0.9%, at 25,126.41.

Dow Jones
Dow Jones Industrial Average briefly falls below 25,000 on Wednesday. | Source;

The broad S&P 500 Index of large-cap stocks plunged 0.7% to 2,783.02. All eleven major sectors reported losses, with utilities reporting the biggest losses.

Sliding technology and communication shares weighed on the Nasdaq Composite Index, which fell 0.8% to 7,547.31.

The Threat Heard Around the World

China has made it abundantly clear it will not back down from a U.S.-led trade war. On Wednesday, the People’s Daily newspaper – the mouthpiece of the Communist Party – published an editorial that warns the Trump administration against further escalation of the tariff war.

Simply translated, the editorial reads: “Don’t say I didn’t warn you.”

The same editorial also suggested that China is prepared to restrict U.S. access to rare earth minerals that are vital for various industries, chief among them being technology and defense.

As colleague Josiah Wilmoth pointed pout, the carefully crafted phrase carries “enormous historical weight in China.”

“Those familiar with Chinese diplomatic language know the weight of this phrase,” reads the Chinese Global Economic Times newspaper.

U.S.-China trade talks broke down earlier this month after Beijing reneged on a deal. No further talks have been planned.

Bond Yields Fall

U.S. Treasury yields extended their slide on Wednesday, as investors shifted their portfolios from risk-on assets to government bonds.

The yield on the benchmark 10-year U.S. Treasury reached 2.21%, the lowest since September 2017. Yields fall as bond prices rise.

Weary about U.S.-China trade negotiations and the health of the global economy, investors have been piling into government bonds to safeguard against volatility. Those fears have been vindicated by the latest batches of economic data.

The U.S. economy is fairing much better than its international counterparts, but it too has faced a broad slowdown at the start of the second quarter. The latest data on consumer spending, factory output and home sales have all deteriorated, raising alarms about the health of the recovery.

On Thursday, the Department of Commerce will publish revised Q1 GDP data. The preliminary GDP report was much better than expected, showing annual growth of 3.2% between January and March.

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Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi