Return of Volatility? U.S. Stocks Plunge on China Growth Woes
U.S. stocks declined sharply on Tuesday, as fears of a slowing Chinese economy disrupted weeks of steady progress on Wall Street. Meanwhile, crypto markets continued to stabilize after a weekend pump-and-dump.
All of Wall Street’s major indexes booked heavy losses in the first session back from Martin Luther King Jr. Day. The Dow Jones Industrial Average fell 301.87 points, or 1.2%, to 24,404.48. Twenty-eight of 30 index members finished lower, led by Caterpillar Inc. (CAT), DowDuPont Inc. (DD) and Goldman Sachs Group Inc. (GS).
The broad S&P 500 Index (NYSEARCA:SPY) fell 1.4% to 2,632.90, led by steep losses in energy and technology shares. Ten of 11 primary sectors were lower by the close.
The technology-focused Nasdaq Composite Index declined 1.9% to close at 7,020.36.
A measure of implied volatility known as the CBOE VIX surged on Tuesday, signaling rocky trading conditions for stocks. The so-called “fear index” rose reached a session high of 21.15 on a scale of 1-100 where 20 represents the historic average. It later settled at 20.80, having gained 16.9%. VIX has gained in just three of the past 11 sessions.
Investors returned to work after the holiday only to see that China’s economy had grown at its weakest pace in 28 years. What’s more, the pace of expansion weakened further in the latter half of 2018, with annual fourth-quarter GDP rising 6.4%. That’s below the full-year growth clip of 6.6%.
President Trump commented on the growth numbers in a tweet on Monday, where he urged Beijing to negotiate a balanced trade deal to bolster its economy.
China posts slowest economic numbers since 1990 due to U.S. trade tensions and new policies. Makes so much sense for China to finally do a Real Deal, and stop playing around!
— Donald J. Trump (@realDonaldTrump) January 21, 2019
China and the U.S. have made important progress in bilateral trade talks. Last week, Beijing pledged to eliminate its surplus with the U.S. over the next six years by importing an additional $1 trillion in American-made goods. However, negotiations appear to have soured after a source told CNBC that a forthcoming meeting between Trade Representative Robert Lighthizer and Chinese vice ministers of trade has been cancelled. More on this story can be found on CCN.
A slowdown in China and other major economies prompted the International Monetary Fund (IMF) to slash its forecast for global growth this year and in 2020. The Fund now expects the global economy to grow 3.5% in 2019 and 3.6% in 2020, down from prior estimates of 3.7% for both years.
Cryptos Lack Progress
Crypto markets were largely rangebound on Tuesday, as the technical tug-of-war between the bulls and the bears continued. The combined value of cryptocurrencies hovered just below $121 billion, where it was little changed from Monday’s levels. Markets whipsawed between gains and losses over the weekend before stabilizing on Monday.
Bitcoin returned above $3,600 in the afternoon session for a gain of 1%. Ethereum rose 1.6% to $119.33. Bitcoin cash, EOS and Tron each rose more than 4.5% on the day.
Related: Can EOS Overcome the Bear Market?
Binance, the world’s largest cryptocurrency exchange by volume, is planning a major expansion into Europe via Jersey, a self-governing entity of the United Kingdom. Binance CEO Changpeng Zhao recently tweeted that the exchange has been “overwhelmed with registrations,” a sign of strong demand in a region hit by political chaos and slowing economic growth.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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