US stocks claw their way back after plunging on news of Huawei CFO Sabrina Meng Wanzhou’s arrest

  • The Dow and S&P 500 both fell about 3 per cent in the morning, but recovered on a report that the Fed was considering pausing rate hikes
PUBLISHED : Friday, 07 December, 2018, 7:10am
UPDATED : Wednesday, 12 December, 2018, 8:53pm

US stocks clawed most of their way back from a deep slide Thursday that at one point had wiped out the market’s gains for the year.

An early plunge briefly knocked more than 700 points off the Dow Jones Industrial Average as the arrest of Huawei CFO Sabrina Meng Wanzhou threatened to cause another flare-up in tensions between Washington and Beijing.

The sell-off eased by late afternoon, however, after The Wall Street Journal reported that the Federal Reserve is considering breaking with its current approach of steady interest rate hikes, favouring a wait-and-see approach. That was relief to investors worried that the Fed might raise interest rates too fast, which could choke off economic growth.

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“The Fed is trying to, in essence, come out and make it clear they are not on a rigid schedule of rate hikes next year,” said Quincy Krosby, chief market strategist at Prudential Financial.

The S&P 500 index fell 4.11 points, or 0.2 per cent, to 2,695.95. The benchmark index had been down as much as 2.9 per cent.

The Dow dropped 79.40 points, or 0.3 per cent, to 24,947.67. The average briefly slumped as much as 784 points.

The technology-heavy Nasdaq composite reversed an early loss to finish with a gain, adding 29.83 points, or 0.4 per cent, to 7,188.26.

Traders continued to shovel money into bonds, a signal that they see weakness in the economy ahead. The yield on the 10-year Treasury note fell to 2.89 percent from 2.92 per cent on Tuesday, a large move.

US stock and bond trading were closed Wednesday because of a national day of mourning for President George H.W. Bush.

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Losses in banks and energy and industrial stocks outweighed gains in internet and real estate companies.

Citigroup fell 3.5 per cent to $60.06. Halliburton slid 4.7 per cent to $29.79. Discovery climbed 4.7 per cent to $26.99.

Last week, stocks jumped after Fed Chairman Jerome Powell indicated the central bank might consider a pause in rate hikes next year while it gauges the impact of its credit tightening program.

The Fed has raised rates three times this year and is expected to boost rates for a fourth time at its December 18-19 meeting of policymakers. That steady pace of rate hikes has begun to worry some investors amid growing signs that some sectors of the economy are hurting, including US home sales. At the same time, there has been growing evidence that the global economic growth is slowing.

“The market seems right now to be focused on increased risks for a 2020 recession,” said Patrick Schaffer, Global Investment Specialist, J.P. Morgan Private Bank. “It’s a very hard market to buy when you see really strong signals that we are indeed late [in the economic] cycle.”

Thursday’s initial wave of selling in the market came about as traders reacted to the news that Canadian authorities had arrested Meng, the daughter of Huawei founder Ren Zhengfei, for possible extradition to the US. Meng is reportedly suspected of trying to evade US trade curbs on Iran.

China has demanded Meng’s immediate release.