The Dow flipped green on Wednesday, putting a trio of hefty losses in its rearview mirror after investors realized they might have overreacted to a few off-hand remarks from President Donald Trump.

Dow Rallies After 3-Day Losing Streak

After falling more than 661 points in a three-day span beginning last week, the Dow Jones Industrial Average achieved a partial recovery on Wednesday. The Dow climbed 115.46 points or 0.42, bringing the index to 27,618.27.

dow jones industrial average chart today, stock market

The Nasdaq rose 0.4% to 8,554.3, while the S&P 500 underperformed, advancing 0.35% to 3,103.89.

The gold price fell, and US Treasury bond yields rose along with stocks. The Cboe VIX, which skyrocketed to nearly 18 during the three-day stock market sell-off, slid back below 15 this morning.

2 Big Threats to the US Stock Market

Today’s stock market rally was a natural response to the fear-driven plunge that ushered in December. Festering economic and geopolitical risks haven’t necessarily evaporated, though.

Here are two big threats that continue to roil the outlook for US stocks.

1. Trade War Retaliation from Beijing

dow jones, trade war

President Trump may not actually plan to drag trade talks through next year’s presidential election, but that doesn’t mean the path to the long-promised phase one agreement doesn’t include major obstacles.

US sanctions tied to alleged human rights abuses in China have inflamed tensions and incited sharp rebukes from Beijing. Up till now, those rebukes haven’t targeted trade negotiations. But perhaps not for much longer.

According to the South China Morning Post, Chinese government advisers are pressing Beijing to retaliate against US “intervention” in Chinese affairs by postponing trade talks and blacklisting US companies.

“Trump apparently thinks he can hurt China on Hong Kong and Xinjiang while still winning the trade war with a favourable deal. That’s unacceptable,”said Shi Yinhong, director of the Centre on American Studies at Renmin University in Beijing and an adviser to the State Council.

Then there’s the impending tariff deadline on Dec. 15. Absent a trade deal, the White House plans to slap tariffs on another $160 billion worth of Chinese goods.

So while it’s reassuring that neither the US nor China has left the negotiating table, the Dow isn’t out of the woods yet.

2. Cracks in the US Economy

Meanwhile, investors must also wrestle with possible cracks in the US economy’s longest-ever expansion.

Earlier today, ADP released its private-sector employment report, and the data were far from encouraging. The US private sector added just 67,000 jobs in November, well below the 156,000 jobs economists had expected. It’s also the worst jobs figure in six months.

ADP November 2019 private sector employment report

Goods-producing sectors like manufacturing recorded their third straight month of job declines, which is unsurprising given that US manufacturing is locked in a technical recession and weighed down by the trade war.

The positive news is that services businesses added 85,000 jobs, which bodes well for a sector that makes up a larger and larger share of the US economy. But there’s no ignoring that sluggish business investment has begun to sap employment growth.

“The job market is losing its shine,” said Mark Zandi, chief economist of Moody’s Analytics. “Job openings are declining, and if job growth slows any further unemployment will increase.”

The government will publish its official employment statistics on Friday. Jobs growth should look brighter in this report, but only because it will include General Motors workers returning from a four-week strike.

Investors will monitor the unemployment rate closely to see whether it exceeds the consensus forecast of 3.6%.

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