Dow Recoils as Bonds Surge, Oil Crashes & Recession Alarms Ring
Wild volatility continues to run rampant on Wall Street, and the Dow Jones succumbed to another dizzying pullback on Wednesday.
After plunging as much as 600 points, dip-buying dragged the DJIA to a more “respectable” 212.14 point (-0.81%) decline to 25,817.38.
Once again, the trade war and collapsing yields lie at the heart of the issue for the Dow.
Collapsing yields, oil and yuan tank Dow Jones
Trump’s trade war is impossible to ignore, and the Chinese government’s weaker than expected yuan fixing spooked Asian stocks and sent crude oil plummeting.
This weakness spilled over into the North American session, but early signs were optimistic as US stocks rallied aggressively from session lows. This bullish move is now sputtering, as a myriad of issues – led by surging bond and plummeting oil prices – continue to suggest a recession is around the corner.
Trade war standoff could spark vicious market sell-off
In regards to the trade war, it is clear that escalation seems more likely than not. Boris Schlossberg, managing director of FX strategy at BK Asset Management, warns there could be a devastating blow coming for global stocks.
“This easing chain reaction from central banks is, of course, driven by the fact that President Trump has completely upended the global trading order… For now, both sides appear to have dug into their positions, and the longer the standoff lasts the more damage it will do to global growth which in turn could trigger a vicious cycle of global equity selloff followed by a further selloff in [commodity] dollars as investors assume an increasingly defensive risk-off posture.”
Dow Stocks: Disney smoked by terrible Q3
Among the 30 Dow stocks, Caterpillar (-2.3%) continues to struggle immensely in the trade war environment. Exxon Mobil was also down amid the massive selloff in crude oil.
Disney was the biggest laggard, shedding a whopping 5% after a miserable Q3. JP Morgan also veered lower following the huge dip in global bond yields.
However, it was not all bad news for DJIA components, as defensive plays like Coca-Cola and McDonald’s both swam against the tide.