Wild comeback: Dow recovers from 785-point plunge

The evolving US-China trade war has launched the stock market on a wild roller coaster ride.

News of the arrest of Huawei CFO Meng Wanzhou in Canada sent the Dow plummeting as much as 785 points on Thursday before the index staged a huge comeback. The Dow closed the day down just 79 points.

The Nasdaq eked out a small gain, recovering from trade war fears that had knocked the index down as much as 2.4%. The S<><><><><><><><><><><><> <><><><><><><><><><><><><><><><><><><><><><><><> <><><><>&P 500 similarly rebounded, ending the day down just 0.2%./ppThe back-and-forth action shows how uncertain investors have become about the status of the US-China trade war. The market was also boosted by aa href=”https://www.wsj.com/articles/restrained-inflation-reduces-urgency-for-quarterly-rate-increase-pattern-1544127856?mod=hp_lead_pos1″ target=”_blank” report in The Wall Street Journal/a indicating the Federal Reserve is considering slowing down the pace of rate hikes next year./pp”It’s an encouraging sign that we closed significantly off the lows on a day that could have been in the record books for downdrafts,” said Art Hogan, chief market strategist at B. Riley FBR./ppWhile investors may be relieved at hints of a more cautious Fed, Hogan said that trade fears remain a major obstacle for the market./pp”I don’t think we fixed any of the things we were worried about,” he said./ppHuawei arrest sparks selling/ppThe arrest of Meng a href=”http://www.cnn.com/2018/12/06/investing/stock-markets-huawei-arrest/index.html” target=”_blank”sent shudders through global markets/a early in the day. Hong Kong’s Hang Seng plunged 2.5% overnight, while European stock markets declined sharply as well. Germany’s DAX nearly closed in a bear market, down nearly 20% from its January closing high./ppCompanies like Apple (a href=”https://money.cnn.com/quote/quote.html?symb=AAPL” target=”_blank”AAPL/a) and Boeing (a href=”https://money.cnn.com/quote/quote.html?symb=BA” target=”_blank”BA/a) that have significant exposure to China fell sharply before rebounding. Other trade-related stocks like Broadcom (a href=”https://money.cnn.com/quote/quote.html?symb=AVGO” target=”_blank”AVGO/a) and Harley-Davidson (a href=”https://money.cnn.com/quote/quote.html?symb=HOG” target=”_blank”HOG/a) were also under pressure./ppThe arrest of Meng — the daughter of the founder of one of China’s most important companies — a href=”http://www.cnn.com/2018/12/06/business/huawei-us-china-trade-war/index.html” target=”_blank”serves as a fresh reminder/a that a href=”https://www.cnn.com/2018/12/03/business/trade-war-business-china/index.html” target=”_blank”the United States and China remain in a trade war/a, despite the a href=”https://www.cnn.com/2018/12/01/politics/trump-china-tariffs/index.html” target=”_blank”ceasefire reached last weekend in Argentina./a Tariffs already imposed remain in place and new ones loom if talks fail to result in a breakthrough or at least an extension within 90 days./ppTrade war fears/ppRenewed trade jitters, along with worries about an economic slowdown, sent the Dow a href=”http://www.cnn.com/2018/12/04/investing/stock-market-today-dow-jones/index.html” target=”_blank”plummeting 799 points on Tuesday./a That selloff wiped out a chunk of last week’s rally, which was the S<><><><><><><><><><> <><><><><><><><><><><><><><><><><><><><><><><><><>P 500’s biggest weekly gain in seven years. US markets were closed on Wednesday in honor of President George H.W. Bush./pp”The Huawei arrest just adds to concerns that this trade situation could deteriorate further,” said Kristina Hooper, global market strategist at Invesco./ppHooper said investors have become more concerned about the US-China trade standoff because the negative impacts have become more apparent. Supply chains have been disrupted, raw material costs are on the rise and businesses may be delaying investment decisions./pp”Almost none of us lived through the full-blown trade wars that erupted in the 1930s,” Hooper said./ppPresident Donald Trump spooked investors on Tuesday when he called himself a “Tariff Man” in a tweet. Trump also suggested tariffs will “MAKE AMERICA RICH AGAIN” — even though these levies are paid by American companies and consumers./ppOil plunges again/ppEnergy stocks retreated in tandem with plunging oil prices. Pioneer Natural Resources (a href=”https://money.cnn.com/quote/quote.html?symb=PXD” target=”_blank”PXD/a) and Baker Hughes (a href=”https://money.cnn.com/quote/quote.html?symb=BHGE” target=”_blank”BHGE/a) slumped more than 3%. US oil prices tumbled 2.7% after OPEC and its allies concluded Thursday’s meeting in Vienna without holding a press conference. Analysts had been anticipating a significant supply cut that would balance the market./ppSaudi Arabia, the leader of OPEC, hinted that the reduction could bea href=”http://www.cnn.com/2018/12/05/investing/opec-meeting-2018/index.html” target=”_blank” less than what analysts anticipated./a Khalid Al Falih, the kingdom’s energy minister, told reporters that a a href=”http://www.cnn.com/2018/12/06/investing/opec-production-cut/index.html” target=”_blank”cut of 1.3 million barrels per day is “excessive.”/a/ppInvestors are also nervously watching a recession indicator in the bond market: the slope of the yield curve. The gap between the two-year and 10-year Treasury yield shrank this week to levels unseen since just before the Great Recession. An inversion — where short-term rates are higher than long-term ones — has been a reliable prognosticator of recessions in the past./ppConcerns about the flattening yield curve a href=”http://www.cnn.com/2018/12/04/investing/bank-stocks-markets/index.html” target=”_blank”weighed heavily on bank stocks/a. Bank of America (a href=”https://money.cnn.com/quote/quote.html?symb=BAC” target=”_blank”BAC/a), Citigroup (a href=”https://money.cnn.com/quote/quote.html?symb=C” target=”_blank”C/a) and Morgan Stanley (a href=”https://money.cnn.com/quote/quote.html?symb=MS” target=”_blank”MS/a) all closed down on the day.