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Earlier Tuesday, the Dow had fallen as much as 648 points, sinking below 26,000 points for the first time since March 29.
The S&P 500 was down 1.7% and the Nasdaq fell 2%.
Why stocks are falling
“The initial optimism that Trump’s truculence was bluster was tempered,” said Michael Hewson, chief market analyst at CMC.
Investors previously expected Beijing and Washington to be close to sorting out a trade deal after months of negotiations. A lack of an agreement between the world’s two largest economies could stymie global growth.
Technology and industrial companies have been hit the hardest by the selloff, because their businesses inherently rely on the global trade of materials and finished goods.
The United States has other trade-related issues on its plate: Trump has previously threatened tariffs on European car makers, which could prove difficult for the industry, and the USMCA agreement to replace NAFTA has not yet been ratified either.
In short, uncertainty is back.
A reversal of the recent trend
Over the past months, the “Goldilocks” investing environment of low inflation and high growth had calmed investors’ nerves. But political risk came back with a vengeance after the US-China trade negotiations seem to be on thinner ice than previously thought possible this late in the talks.
Many have weighed whether the presidential tweet was just a negotiation tactic. Analysts at Bank of America believe that both parties at the table remain motivated to agree a deal.
Lighthizer, the top US trade negotiator, said the administration would increase penalties on $200 billion of Chinese goods to 25% from 10% on Friday. Trump renewed his threat to raise tariffs on Sunday.
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