Watch CBS News

5 reasons stocks are getting slammed

Tariff impact
A look at how these tariffs will impact Americans 03:17

Mounting fear of an incipient global trade war is sending stocks into a tailspin. Yet the prospect of ugly tit-for-tat conflict between the U.S. and China isn't the only issue investors are worried about.

This week's plunge has sent stocks back to their early February levels, when the Dow swooned on fears about higher inflation and the potential for faster-than-expected interest rate increases.

The blue-chip index is now hanging below the 24,000 level, a threshold that has only been crossed a few times since November. If stocks slip below a February intra-day low of 23,360, the slump could pick up steam and push shares down to levels not seen since October.

What's driving the sudden reappearance of fear? Here are five key factors:

Trump, Mueller and the Russia probe

Investors are concerned that Mr. Trump's "pro-business" agenda may get derailed. The resignation this week of John Dowd, the president's lead attorney, was taken as a sign that Mr. Trump may become more aggressive with Robert Mueller's investigation into Russia's election interference.

Other reports have suggested Mr. Trump is considering the return of attorney Marc Kasowitz, which could usher in a more combative relationship with Mueller. 

Any threat that could shorten or otherwise jeopardize Mr. Trump's term -- such as if the president tries to end Mueller's probe early -- worries investors and traders. 

Trump, China and tariffs

President Trump this week unveiled plans to put a 25 percent tariff on an estimated $50 billion in Chinese imports, a move that spooked investors over fears of a global trade war

The tariffs could be wide-reaching, with the White House identifying 1,500 product categories that will be covered by the tariffs. The administration is reportedly considering a second phase of penalties including restrictions on visas and investments. 

China threatens to impose $3 billion in tariffs on U.S. imports 06:26

If China retaliates, a trade war could sap global growth, push up import prices and cause other instabilities including sending interest rates higher. According to Capital Economics, agriculture is one of America's most vulnerable industries, since nearly a quarter of U.S. exports are shipped to China, including 60 percent of soybean exports.

The Federal Reserve

Under new Chairman Jerome Powell, the Fed this week raised interest rates by another quarter point. While the move was expected, Fed officials also increased their interest rate projections for 2019 and beyond.

Some investors believe the new projections signal a "hawkish" stance. The futures market now prices in the odds of three additional rate hikes this year at nearly 40 percent versus 26 percent back in February.

Tech stocks

The bad news continues to pour in for Facebook (FB). The fallout from a data-privacy scandal has spawned the  #DeleteFacebook movement on social media and increased the risk that Facebook will face new regulations on the sale and use of user information.

Facebook's stock has declined more than 15 percent from its early February high, while other tech stocks have also slipped amid regulatory concerns. That's come as a shock to some investors, since technology shares had recently outperformed the broad market -- until Facebook's data issues came to light.

Worries about share buybacks

Pressure from all these factors is also causing weakness in the corporate bond market. Debt-funded corporate share buybacks are an important source of demand for the equity market. Measures of investment-grade credit risk -- that is, the risk of default or bankruptcy -- have increased to six-month highs.

That could increase funding costs for businesses that want to buy back their own shares. If businesses react by hoarding their extra cash instead of buying back their shares on the open market, a major source of buying power could leave the stock market at a critical time.

View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.