Jim Cramer advised investors be ready for a ‘rocky week’ after Dow drops 650 points
US stocks opened lower on Wednesday, investors are turning to traditional defensive assets in the form of gold and government bonds due to concerns about the impact of the protracted US-China trade war on global growth.
The Dow Jones Industrial Average fell 215.30 points, or 0.83%, to open at 25,814.22. S&The P 500 opened 23.12 points lower, or 0.80%, to 2858.65. The Nasdaq Composite Index fell 85.99 points, or 1.10%, to 7,747.27 at the open.
Investors are returning to a safe haven like gold. Just as they did on Monday, when stocks fell the hardest in a year within one trading day. Gold hits more than six-year highs.
«The harvest is falling and gold is rising, ”said Peter Cardillo, chief market economist at Spartan Capital Securities. – This raises concerns about the impact of the trade war on the economy».
«Investors need to be doubly careful», – he said.
The yield on 10-year Treasury bonds fell to their lowest level since 2016. The underlying yield on 10-year Treasuries fell below 1.6% after surpassing 2% in August. The move further narrowed the yield curve, this widely watched indicator of a recession. The spread between the 10-year rate and the 2-year yield fell to its lowest level since 2007 at less than 8 basis points.
German 10-year bond yields plunge to minus 0.59% and hit record low.
Banking stocks including J.P. Morgan Chase and Bank of America were down as the only sector to lose the most from falling interest rates. J.P. Morgan Down 2.8%, Bank Of America Down 3.3%.
China also posted weaker-than-expected yuan levels, adding to investor concerns. This is what triggered the Monday sales..
China on Monday allowed its currency to plunge to its lowest level in more than a decade against the US dollar, with the yuan falling below 7 per US dollar and triggering the biggest sell-off of the year on Wall Street. However, China insists that the move was not a response to recently announced tariffs. Stocks rebounded on Tuesday as China stabilized its currency.
«This looks more like a warning shot than an active devaluation, as the fall in the yuan reflects a deterioration in key economic indicators and an increase in trade tariff risks.», – said Mark Hafele, Global Investment Director of UBS GWM.
The trade war between China and the United States has been going on for over a year. Investors are worried about its implications in terms of global growth and corporate profits. Some central banks have even begun to cut interest rates amid this pressure..
From corporate stories, Disney stock caught the spotlight, falling on weaker-than-expected results in the previous quarter. Disney’s results were undermined by increased losses on streaming services such as Hulu, ESPN +, and Disney +. The media giant also cited the integration of Fox’s entertainment assets as the reason for its weak reporting. Disney shares in premarket fell by more than 3%.