Wall Street sunk on Tuesday as fresh signs emerged that the global economy could be slowing faster than investors expected.
The Dow Jones industrial average dropped as much as 462.04 points by early Tuesday afternoon on surprisingly weak economic data from China, a revised growth forecast from the International Monetary Fund and profit warnings from big companies like Johnson & Johnson.
Losses moderated on optimistic reports about US-China trade talks, and the index ended the day at down 301.87 points at 24,404.48.
The slump comes after a four-day rally last week that had left the Dow more than 800 points higher.
“Basically, when you look at the entire picture, it looks like not a whole lot has changed since the market ran into trouble in the last half of 2018,” Bruce Bittles, chief investment strategist at RW Baird, told The Post.
The swift move downward came after IMF Managing Director Christine Lagarde revised down estimates for growth around the world, to 3.5 percent from 3.7 percent.
The main reasons behind the dour prognostication was the US-China trade war, and China’s slowing economy, which grew at 6.6 percent last quarter, the slowest pace in 28 years.
“Six months ago these were threats, but they were not at the level of magnitude we have now,” Lagarde said at the World Economic Forum in Davos, Switzerland.
“Just a deceleration of [global] growth can lead to recession,” Bittles said.
In addition to the gloomy Asian news, the US housing markets appeared to have cooled more than expected, as existing home sales in December dropped 10.3 percent from a year earlier — their biggest monthly drop since May 2011.
Wall Street is also concerned that trade tensions, nationalist uprisings, and skyrocketing debt levels may soon reach a tipping point.
“It can’t be business as usual amid constant protests, riots, shutdowns and escalating social tensions,” Seth Klarman, the influential head of the $27 billion hedge fund Baupost Group, wrote in a 22-page letter to investors, according to the New York Times.
In the letter, which was distributed this weekend to some of the global elite at Davos, Klarman scolds investors for ignoring “the longer-term implications of a more isolated America,” and the country’s increase in debt.
“There is no way to know how much debt is too much, but America will inevitably reach an inflection point whereupon a suddenly more skeptical debt market will refuse to continue to lend to us at rates we can afford,” Klarman, who didn’t attend Davos, wrote.
“By the time such a crisis hits, it will likely be too late to get our house in order.”
