Dow sinks 500 points as trade truce enthusiasm fades

The Dow dropped 500 points, or 2.1%, on Tuesday. The S&P 500 declined 2.2%, while the Nasdaq tumbled 2.7%.

The selloff wipes out Monday's 288-point jump on the Dow. That rally had been fueled by relief over the ceasefire between the United States and China on the trade front.

But investors are quickly realizing that the US-China trade war is not over. The tariffs already put in place remain. And new tariffs could be implemented if the two sides fail to make progress.

President Donald Trump underscored that point on Tuesday. Trump said that he would "happily" sign a fair deal with China but also left open the possibility that the talks will fail.

"President Xi and I want this deal to happen, and it probably will," Trump tweeted. "But if not remember... I am a Tariff Man."

Investors have also grown worried about fluctuations in the bond market. The gap between short and long-term Treasury rates has narrowed significantly this week. An inversion of the yield curve, meaning short-term rates are higher than long-term ones, is widely believed to signal a looming recession.

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