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Stocks down, and Dow drops 800 points, reversing gains from U.S.-China trade truce

Stocks tumble amid trade uncertainty

U.S. stocks tumbled in Tuesday trading in a selling wave that obliterated the market's gain from the day before when Wall Street celebrated news of a truce in the U.S.-China trade fight.

The celebration may have been premature, as experts warned that the two countries remain far apart in ironing out key disputes over tariffs as well as protection of technology secrets and intellectual property. President Trump even reminded his Twitter followers Tuesday morning: "I am a Tariff Man."

"Narrow agreements and modest concessions in the ongoing [U.S-China] trade dispute will not bridge the wide gulf in their respective economic, political and strategic interests," said  Atsi Sheth, managing director at Moody's Investors Service, in an email.  

The Dow ended Tuesday down nearly 800 points, or 3.1 percent, to 25,027.54, more than erasing its 488-point gain over the previous two trading days. The S&P 500-stock index fell 3.2 percent and the tech-heavy Nasdaq composite index dropped 3.8 percent. The Russell 2000 index of smaller-company stocks now has a loss for the year.

Tech companies, banks and industrial stocks accounted for much of the sell-off as traders moved assets into the relative safety of U.S. government bonds, driving bond yields sharply lower.

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The sharp turn in the markets followed a strong rally on Monday fueled by optimism over the news that President Donald Trump and his Chinese counterpart Xi Jinping had agreed at the G-20 summit over the weekend to a temporary, 90-day stand-down in the two nations' escalating trade dispute.

"Tariff Man" takes to Twitter

But the market's optimism faded Tuesday amid published reports questioning the scant details out of the Trump-Xi talks and growing skepticism that Beijing will yield to U.S. demands anytime soon.

"The actual amount of concrete progress made at this meeting appears to have been quite limited," Alec Phillips and other economists at Goldman Sachs wrote in a research note.

Willie Delwiche, investment strategist at Baird, echoed those doubts. "The sense is that there's less and less agreement between the two sides about what actually took place," Delwiche said. "There was a rally in the expectation that something had happened, the problem is that something turned out to be nothing."

Mr. Trump also hasn't helped his cause by sounding off about the trade negotiations with China, some analysts said.

"The president yesterday undid, with four tweets, Monday's bounce in stock following the news that the increase in tariffs on Chinese imports has been deferred for 90 days, pending talks," Ian Shepherdson, chief economist with Pantheon Macroeconomics, said in a client note. "Both the sentiment of the tweets—the president called himself 'Tariff Man'—and the profound lack of understanding of economics they demonstrated were deeply alarming."

The trade dispute has rattled markets in recent months as signs emerged that it has begun affecting corporate profits. That's stoked traders' fears that if it drags much longer it could further weigh on global economic growth.

The jitters helped drive demand for government bonds Tuesday, pushing prices higher. The yield on the 10-year Treasury note fell to 2.91 percent from 2.99 percent late Monday, a large move. The slide in bond yields, which affect interest rates on mortgages and other consumer loans, weighed on bank stocks: JPMorgan Chase sank 4.5 percent and Citigroup fell 5.4 percent.

Tech stocks take a beating

Chipmakers were among the biggest decliners in a technology sector slide. Advanced Micro Devices dropped 9.4 percent, while Micron Technology lost 6.4 percent.

Apple lost 4.4 percent, falling below $177 a share by the 4 p.m. close, after the consumer electronics giant was downgraded by HSBC analysts, citing the possibility that iPhone volume and value growth may moderate due to a saturated mobile phone market.

Stock and bond trading will be closed in the U.S. Wednesday in observance of a national day of mourning for former President George H.W. Bush.

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