SAN FRANCISCO (Reuters) – Sharper losses could be in store for Wall Street.
The S&P 500’s 3.2 percent slump on Monday in reaction to an escalating U.S.-China trade war has added to fears that a prolonged market correction could already have started.
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The slide left the benchmark index down 6% from its record high close on July 26. That was its deepest fall from a record high since a 6.8 percent selloff that began in early May and lasted a month, also driven by nervousness about the year-long trade conflict.
Many investors define a stock market correction as a fall of at least 10 percent from a high, often as a reaction to excessive gains.
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“We now need to prepare ourselves for a sharper U.S. equity market correction as investors reprice the risk to the economy from the trade war – and the stronger U.S. dollar,” warned Seema Shah, chief strategist at Principal Global Investors in London. “The Federal Reserve will now be under severe pressure to cut policy rates again at the September meeting to offset the downside impact.”
Monday’s sell-off was sparked after China let the yuan currency tumble beyond the 7-per-dollar level for the first time in more than a decade. It was a sign Beijing might be willing to tolerate further currency weakness in the face of the escalating trade dispute with the United States.
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The sharp 1.4% drop in the yuan comes days after U.S. President Donald Trump stunned investors by vowing to impose 10% tariffs on the remaining $300 billion of Chinese imports from Sept. 1, abruptly breaking a brief month-long ceasefire in the bruising trade war.
Trump has measured himself by the success of the stock market, tweeting about its record levels during his administration. He has also lambasted Federal Reserve Chairman Jerome Powell for not cutting interest rates more...
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