Dow makes stunning comeback, recovering nearly all of 471-point plunge on hope trade deal not dead
Stocks recovered the bulk of their earlier losses on Monday as investors bet China and the U.S. will still strike a trade deal despite President Donald Trump's threat to hike tariffs on Chinese imports over the weekend.
The Dow Jones Industrial Average ended the day down just 66.47 points at 26,438.48, while the S&P 500 closed 0.4% lower at 2,932.47. The Nasdaq Composite was down 0.5% at 8,123.29.
The market's comeback accelerated after CNBC reported that a Chinese delegation will in fact still travel to the U.S. to continue negotiations this week, according to sources, albeit with a smaller group than originally planned.
The Dow was down as much as 471 points, while the S&P 500 traded down 1.2% at its lows. The Nasdaq was briefly down 2.2%. Dow-member Disney traded 0.2% higher after falling as much as 1.5%, offsetting some of the decline. McDonald's and Chevron traded higher as well.
Stocks initially fell after Trump tweeted on Sunday that the current 10% levies on $200 billion worth of Chinese goods will rise to 25% on Friday. He also threatened to impose 25% tariffs on an additional $325 billion of Chinese goods "shortly."
Though trade negotiations between Washington and Beijing officials are set to resume on Wednesday, the president lamented that the progress is moving "too slowly" as China tries to re-negotiate terms of the deal.
Trump claimed in another tweet Monday that the U.S. is losing between $600 and $800 billion a year on trade, noting: "We're not going to be doing that anymore."
"What happened overnight is a bit of posturing on both sides. I think both sides want to continue the progress to reach a trade agreement," said Michael Arone, chief investment strategist at State Street Global Advisors. "I think it's a short-term hiccup in a longer-term move up from the market."
Shares of Apple and Caterpillar came off their worst levels of the session, closing more than 1% lower. Apple fell as much as 3.9% while Caterpillar lost 3.4% at one point.
The apparent about-face in trade sentiment by Trump left some Wall Street insiders worried about the effect on the U.S. equity market, which was fresh off record highs.
"A lot of people were caught long," said Larry Benedict, founder of The Opportunistic Trader. "I think [Trump] is trying to put pressure on China to make a move," he said.
The notched a record close last Tuesday. The tech-heavy Nasdaq, which has soared more than 20% this year, clinched a record close on Friday.
The president's announcement appeared to contradict fresh suggestions from Treasury Secretary Steven Mnuchin and White House chief of staff Mick Mulvaney. Asked Tuesday about Mnuchin's prior suggestion that the White House could announce an agreement with Beijing in the next two weeks, Mulvaney said, "I think that's fair."
The positive outlook from Mnuchin and Mulvaney — as well as upbeat commentary from director of Trump's National Economic Council, Larry Kudlow — has often met contradiction from trade hardliners like U.S. Trade Representative Robert Lighthizer.
Lighthizer, known for his hawkish economic views toward China, has encouraged Trump not to remove the taxes on Beijing's goods until it shows it is complying with the terms of the agreement.
"Bob Lighthizer has Trump's ear, not so much Mnuchin and Kudlow in the final days of the trade talks," said Larry McDonald, editor of The Bear Traps Report. "The hardball playbook strikes again."
Wall Street also contended with news of the U.S. deploying a carrier group and bombers in the Middle east as tensions with Iran increase. The move, according to national security advisor John Bolton, said this was a warning to the Iranian regime, noting: "The United States is not seeking war with the Iranian regime, but we are fully prepared to respond to any attack."
— CNBC's Kayla Tausche contributed to this report.