Stocks fell Tuesday as doubt about a permanent deal between the U.S. and China crept into traders’ minds after a rally in the previous session. The U.S. and China agreed over the weekend to hold off on any additional tariffs on each other’s goods on January 1, in order to allow trade talks to continue. Leaders from the two countries met over dinner at the G-20 summit in Argentina.
But discrepancies over when that truce would begin has led to confusion. While President Donald Trump’s economic advisor, Larry Kudlow, told reporters Monday that the cease-fire would start from January 1, the White House later issued a corrected statement saying that the 90-day truce period would start on December 1.
Regardless, the news sent stocks surging on Monday, with the Dow rallying more than 300 points. “Bottom line, yesterday’s price action further confirmed that while clearly there has been some important macro clarity provided, we need to see more before we can expect the S&P 500 to make a serious challenge to the old highs,” said Tom Essaye, founder of The Sevens Report.
China and the U.S. have been engaged in a tense sparring match over trade, with both countries hitting each other’s economies with levies on imported goods. Trump’s administration has so far slapped tariffs on $250 billion worth of Chinese imports, while Chinese President Xi Jinping’s government has imposed tariffs on $110 billion in U.S. goods.
Amid doubts over whether the two can prevent further escalation to the trade war, Treasury Secretary Steven Mnuchin on Monday told CNBC that he is “very hopeful” the two countries can turn the trade truce into a “real agreement.”
Wall Street is also worried about a so-called inverted yield curve. The yield on the three-year Treasury note surpassed its five-year counterpart on Monday. Historically, when short-term yields trade above longer-term rates a recession could follow, though it is often years away after the signal triggers.
Toll Brothers fell more than 8 percent after the company issued weaker-than-expecting guidance, pointing to negative reports about the housing market as the cause for the slowdown. Apple dropped 2 percent after HSBC downgraded the company’s stock to hold from buy as it faces “the reality of market saturation.”