Dow falls 500 points as Wall Street gets tariff whiplash

US stock market losses accelerated on Tuesday, as financial markets continue to grapple with the risk of an all-out trade war.

Just after 1 pm ET, the Dow, S&P 500 and Nasdaq were all solidly in the red, adding to their losses from earlier in the day and yesterday. The Dow is more than 500 points lower. The S&P 500 was down 1.8% and the Nasdaq fell 2.1%.

European stocks fared poorly too. The FTSE 100, DAX and CAC 40 all closed 1.6% lower. The pan-European Stoxx 600 fell 1.4%.

Global stocks were ailing after President Donald Trump Sunday threatened further tariffs on Chinese imports, throwing global markets into disarray. Investors previously expected Beijing and Washington to be close to sorting out a trade deal after months of negotiations.

Asian markets ended their day mixed, with the Shanghai Composite closing 0.7% higher, retracing some of its 5.6% drop on Monday, according to Refinitiv.

The “Goldilocks” investing environment of low inflation and high growth had calmed investors’ nerves over the past several months. But political risk came back with a vengeance after the US-China trade negotiations seem to be on thinner ice than previously thought possible this late in the talks.

Monday’s selloff started with the Dow opening sharply lower, but stocks recovered most of their losses yesterday as trading went on. Investors took some comfort after Chinese Vice Premier Liu said he remains scheduled to travel to the US this week.

“Markets appear to be holding on to hope that US-China trade negotiations will not be derailed, amid reports that this week’s trade talks in Washington will still take place,” said Han Tan, Market Analyst at FXTM.

Many have weighed whether the presidential tweet was just a negotiation tactic. Analysts at Bank of America believe that both parties at the table remain motivated to agree to a deal.

Speaking to reporters on Monday, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin said China reneged on previous agreements over the weekend, undermining progress towards a detailed trade agreement between the world’s two largest economies.

Lighthizer, the top US trade negotiator, said the administration would increase penalties on $200 billion of Chinese goods to 25% from 10% on Friday. Trump renewed his threat to raise tariffs on Sunday.

“That assumption is likely to be tested sooner rather than later, and the initial optimism that Trump’s truculence was bluster was tempered somewhat by trade representative Robert Lighthizer’s claims that China had backpedaled on certain elements on what had already been agreed,” said Michael Hewson, chief market analyst at CMC.

By Anneken Tappe, CNN Business

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