WASHINGTON One day the Dow Jones industrial average drops 500 points, then it shoots up 600 points and a few days later it plummets 800 points 799 to be exact Tuesday.
What in the name of Warren Buffett is going on?
Chart of the Dow Jones Industrial Average over the last six months. Source: tradingeconomics.com
Financial markets have been highly volatile the last few weeks, knocked up and down by several key factors beyond the usual day-to-day movements related to specific companies.
Whats causing it?
Lets start with trade.
The ongoing trade war between the U.S. and China has weighed heavily on investors. With the two nations slapping tariffs on each others products, and threatening more, investors have been wary about the effect on companies that rely on exports and imports.
But werent stocks just up Monday because of optimism about trade?
Yes, those worries were eased over the weekend when President Trump and Chinese President Xi Jinping emerged from a steak dinner at the Group of 20 economic summit in Argentina to announce a 90-day truce in the escalating trade battle.
Trump added to the exuberance by tweeting late Sunday that China has agreed to eliminate tariffs on U.S. auto imports. The development helped send stocks higher when financial markets opened Monday.
So what happened on Tuesday?
Questions have started to arise about how much progress was made in Argentina. Chinese officials said nothing about the auto tariffs, and top Trump administration officials said there was no specific agreement on that point.
Trump poured more cold water on hopes that the trade war was close to being resolved by tweeting Tuesday that I am a Tariff Man and that the U.S. was taking in billions of dollars from the levies. He indicated hes willing to keep the tariffs in place if trade talks with China dont produce results.
Those comments helped accelerate Tuesdays sell-off.
I think the market is now in a wait-and-see, and the market is trying to figure out is there going to be a real deal at the end of 90 days or not, Treasury Secretary Steven T. Mnuchin said at an event in New York on Tuesday. Whether we can get that to a real agreement or at least make a lot of progress over the 90-day period or not, time will tell.
Why is everybody so worried about the U.S.-China trade dispute?
The U.S. and China are the worlds two largest economies. Their trade war has ripple effects around the globe.
The Organization for Economic Cooperation and Development recently forecast worldwide economic growth would slow to 3.5 percent next year from this years 3.7 percent. Trade tensions were a major reason.
Are their other reasons why global economic growth is slowing?
