Stocks pared losses on Thursday after a report suggested Federal Reserve officials are mulling a new "wait-and-see" stance after their December meeting, which could signal a slower pace of interest rate hikes in 2019.
The Dow closed down 79 points, or 0.3 percent, at 24,947.67 after swooning as much 785 points earlier in the day. Investors were rattled by news of theat Chinese telecommunications giant Huawei at the behest of U.S. authorities, which stoked fears it could hinder progress in trade talks with China.
Federal Reserve officials aren't as sure about the pace of interest rate increases, although they are likely to continue gradually boosting borrowing costs next year, The Wall Street Journal reported. Yet the steep decline earlier in the day, followed by the afternoon bounceback, underscores Wall Street's current volatility, as anxieties and reassurances can quickly spark a selloff or convince investors to pour back into the market.
"Investors need to brace for higher volatility as the cycle matures and as US-China tensions remain elevated," said Mark Haefele, chief investment officer with UBS Global Wealth Management, in a research note.
The decline represents a continuation of Tuesday's 800-point plunge in the blue-chip index before trading was closed Wednesday in observance of afor former President George H.W. Bush.
The S&P 500 index was little changed, while the tech-heavy Nasdaq index rose slightly.
Huawei CFO arrested
The news of Huawei CFO Meng Wanzhou's arrest sent shares sharply lower on Thursday morning on fears of rising tensions between China and the U.S. The incident heightens concerns that the trade truce between President Donald Trump and his Chinese counterpart Xi Jinping won't hold, pushing the two economic powers into a trade war.
"We are closely watching the developments in Asia after reports that Canada has arrested the Huawei CFO facing U.S. extradition for allegedly violating Iran sanctions. This headline is quite significant as the U.S. government is attempting to persuade allies to stop using Huawei equipment due to security fears, and this headline could weigh negatively on tech stocks," said Stephen Innes, head of trading at Oanda in Singapore.
A fragile trade truce
Mr. Trump and Xi agreed to the truce over the weekend, sending shares sharply higher on Monday. But confusion over what the two sides agreed to and whether the deal will enable Beijing and Washington to resolve longstanding, profound differences over technology policy and other issues led to the rout on Tuesday.
"Skepticism, however, appears to have overtaken optimism once more weighing on markets this morning," Stifel economist Lindsey Piegza wrote in a research note. "After all, according to reports, none of the commitments that U.S. officials said had been given by China were agreed to in writing."
Adding to that skepticism are concerns about how Meng's arrest could influence trade discussions between the two economic powers. In a statement, Huawei said Meng was changing flights in Canada when she was detained "on behalf of the United States of America" to face "unspecified charges" in New York. It added that it is "not aware of any wrongdoing by Ms. Meng."
Privately held Huawei recently surpassed Apple as the second biggest maker of cellphones after South Korea's Samsung Electronics. China is demanding Meng's immediate release.
Oil prices falling
Meanwhile, oil prices dropped as OPEC countries gathered on Thursday for a two-day meeting to find a way to support the falling price of oil, with analysts predicting the cartel and key ally Russia would agree to cut production by at least 1 million barrels per day.
Benchmark U.S. crude lost $1 to $51.89 a barrel in electronic trading on the New York Mercantile Exchange. Brent crude, used to price international oils, dropped 99 cents to $60.57.
Crude prices have been falling since October because major producers — including the U.S. — are pumping oil at high rates and due to fears that weaker economic growth could dampen energy demand.
The price of oil fell again on Thursday amid speculation that OPEC's action might be too timid to support the market. Saudi Arabia, the heavyweight within OPEC, said Thursday it was in favor of a cut.
"Yield curve" inversion
Stock investors are also spooked by the, a phenomenon that occurs when longer-term bonds pay lower returns than short-term bonds. With the yields on five-year Treasury notes falling below those on three-year notes on Monday, investors rae taking notice because that hasn't occurred since 2007 -- shortly before the recession.
Because the yield curve tends to invert before economic downturns, investors are now concerned it may signal an impending recession, although economists point out that GDP growth and the labor market remain strong.
The bond market "has reignited the debate about what, if anything, the yield curve tells us about the prospects for the US economy and the stock market," noted Oliver Jones, markets economist at Capital Economics, in a research note. "We think its low level is mainly a product of worries about the outlook for growth in the U.S."