Dow Drops 450 Points Amid Worries Over U.S.-China Tensions

Updated at 1:51 p.m. ET

U.S. stock markets plunged again Thursday after a Chinese technology executive was arrested in Canada, escalating U.S.-China tensions. The Dow Jones industrial average was down more than 750 points, or about 3 percent, in late-morning trading.

By midafternoon, it recovered some of its losses and was down more than 450 points, or nearly 1.9 percent.

That’s on top of a 799-point drop for the blue chip index on Tuesday. U.S. markets were closed on Wednesday in honor of former President George H.W. Bush’s funeral.

Canadian authorities arrested Meng Wanzhou, the chief financial officer of Chinese telecom giant Huawei. A Canadian official said law enforcement took her into custody at the request of the U.S., which is seeking her extradition on accusations of violating its sanctions on Iran.

The arrest comes at a delicate time, as Washington and Beijing are set to negotiate a deal that could diffuse long-standing grievances over trade.

“I think investors are really worried about a global slowdown,” Jack Ablin, the chief investment officer at Cresset Wealth Advisors, told NPR.

In many respects, the arrest “personified the power struggle between the United States and China,” he said.

Huawei, which sells smartphones, has long been identified by the U.S. as a threat to national security. The Pentagon has alleged the Chinese government could use the phones to spy.

Other pressures are weighing on the financial markets.

This week, the interest rate on some short-term U.S. Treasury securities rose above that of longer-term instruments. Known as an inversion of the yield curve, this unusual phenomenon is something that hasn’t occurred since 2007. Economists say it often signals a slowing of growth and perhaps even a recession.

“Taking that on top of all this other news has really been a one-two punch for investors,” Ablin said.

The Federal Reserve has been raising interest rates as the U.S. economy recovers from the Great Recession, and it’s expected to hike them again later this month. Investors have been looking for clues that the Fed won’t be as aggressive in raising rates in 2019.

And the price of oil has weakened amid signs of slowing growth in the global economy.

“Notwithstanding all of this recent market turbulence, the market so far this year is essentially flat,” Ablin said. “People tend to lose sight of that. … It’s not as dangerous from a longer-term perspective as it seems over the last few days.”

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