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(Bloomberg) -- Wild swings lashed Wall Street for a fourth straight session as back-and-forth trade threats between the US and China knocked down stocks, erasing an earlier rally that was the biggest since 2022. The S&P 500 fell 1.6%, leaving it on the brink of a bear market.
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Hopes for a quick end to extreme volatility were dashed after a White House official said the US is moving forward with tariffs on China as high as 104% while Premier Li Qiang said his country has ample policy tools to “fully offset” negative external shocks. Long-term Treasury yields soared after a lackluster US sale of notes highlighted cracks in the haven status of government debt.
Tuesday’s slide extended the S&P 500’s drop since the president detailed worldwide levies last Wednesday to more than 12% and at one point pushed the gauge down 20% since its record close in February, though stocks bounced at that level. It was also another day of nearly unprecedented volume on US equity markets, with more than 23 billion shares changing hands.
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“The volatility reflects the new situation in which no one knows what the rules of road are, or even what the desired destination is,” said Que Nguyen at Research Affiliates LLC. “Until investors reset expectations or those rules and goals are better understood, markets will continue these wild swings between hope and fear.”
Across world markets, investors have been gripped by concerns that something may break in the financial plumbing amid the cross-asset volatility, spurring speculation the Federal Reserve may need to speed up rate cuts to prevent a recession even with inflation jitters running rampant.
“The fundamental reason for the drawdown has been policy uncertainty - it’s functionally impossible to put in a bottom until that fundamental reason has been resolved, or at least until there is directional clarity on it,” said Scott Ladner at Horizon Investments.
Trump spent the final hours before his sweeping tariffs were set for full implementation lining up talks with key US allies, but hopes for a last-minute agreement with China appeared distant.
As foreign nations appeal to Washington for negotiations, Treasury Secretary Scott Bessent said there’s the potential for advantageous trade deals. Japan looks set to get priority in US tariff talks while Trump said prospects for a deal with South Korea were “looking good.”