Whiplash on Wall Street as tension about global economy mounts

Stocks fell around the world after the arrest of a top Chinese technology executive intensified concerns that China and the United States, the world’s two largest economies, could be entering a risky new chapter in their trade dispute. But Wall Street recovered most of those losses in an afternoon rally predicated on the prospect that the Federal Reserve may slow down on interest rate increases next year.

At one point in the day, the S&P 500 was down as much as 2.9 percent, mirroring steep declines in Asia and Europe. A recovery late in the trading day, however, left the index down only about 0.2 percent at the closing bell.

The dueling messages continued Friday morning in Asia, where markets were mixed and futures that predict Wall Street’s opening showed a modest drop.

The worldwide drop was set off by news that the chief financial officer of the Chinese telecom giant Huawei, Meng Wanzhou, had been arrested in Canada at the request of the United States. Her detention Saturday, the same day President Donald Trump and President Xi Jinping of China agreed to a trade truce, could further complicate efforts to resolve a dispute that has weighed on financial markets in recent weeks.

In recent days, skepticism had grown about prospects for that 90-day truce, as Trump administration aides played down the chances of striking a broad deal and Trump threatened further tariffs on imports from China, even calling himself a “Tariff Man” in messages on Twitter.

But the arrest of Meng, the daughter of Huawei’s founder, threatened to open a riskier new chapter in a fight that investors increasingly see as a threat to financial markets and the economy.

“This is going to continue to be a headwind at a time when people are worried about global growth,” said Dan Clifton, a head of policy research with the analysis firm Strategas.

For most of the year, the United States — less reliant on trade than most wealthy nations — had been a global standout, thanks in part to a burst of fiscal stimulus from the Trump tax cuts, while the trade war caused trouble in the rest of the world’s financial markets.

In China, where the economy is growing at its slowest pace in almost a decade, stocks have slumped more than 20 percent. Export-based economies that are closely tied to China — like Japan and Germany — have started to struggle too. Growth in emerging markets, which often supply the commodities that have fueled the Chinese boom in recent decades, has also been hurt.

But in recent weeks, worry about the trade war has begun to take hold in the United States as well. Since its peak in late September, the S&P 500 has declined 8 percent, as investors grew concerned about the outlook for corporate profits, the potential costs of the trade spat and rising interest rates, which are traditionally viewed as a negative for stocks.

The outlook for interest rates shifted suddenly Thursday, when The Wall Street Journal published an article saying Federal Reserve officials were considering emphasizing a “wait-and-see” approach to future rate increases at the central bank’s meeting this month. Although this message was in line with previous Fed comments, the stock market began to recover soon after the article was published.

The rally did little for investors in energy shares. The sector has been hard hit by a slump in crude oil prices in recent weeks and was the worst-performing part of the S&P 500 on Thursday.

Prices for benchmark U.S. crude oil fell more than 2 percent Thursday, as OPEC ended its meeting without reaching a deal to reduce oil output, even as Saudi Arabia pressed for production cuts. Exxon Mobil and Chevron both dropped more than 1 percent.

Elsewhere, yields on government bonds dropped sharply early in the day as investors flocked to the safety of Treasury debt. But the declines in yields moderated late in the day, in tandem with the shift in stock trading.

Bond yields, which move in the opposite direction of prices, tend to drop as investors downgrade expectations for growth and inflation.

Those lower yields can crimp the profitability of banks, which charge interest rates that are based on government bond yields. The threat of such pressures has hammered American financial stocks in recent days. The S&P 500 financial sector index was the second-worst-performing part of the market Thursday, dropping 1.4 percent.

And while few expect a hasty end to the economic expansion in the United States, the recent swings in stocks suggest investors are increasingly worrying about any threats that could worsen growth forecasts.

“There’s a bit of a growth slowdown in place,” said Kate Moore, chief equity strategist for BlackRock. “This is a very different environment from where we were this time last year.”

The New York Times

Whiplash on Wall Street as tension about global economy mounts

A steep slide followed by a strong recovery whipsawed investors Thursday, as concerns about the global economy, trade tensions and interest rates kept markets on edge.

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