S&P 500 plunges in worst loss of year as trade war escalates
NEW YORK — U.S. stocks plunged to their worst loss of the year Monday and investors around the world scrambled to sell on worries about how much President Donald Trump's worsening trade war will damage the global economy.
China let its currency, the yuan, drop to its lowest level against the dollar in more than a decade, a move that Trump railed against as "currency manipulation." It also halted purchases of U.S. farm products. The moves follow Trump's tweets from last week that threatened tariffs on about $300 billion of Chinese goods, which would extend tariffs across almost all Chinese imports.
The escalating dispute between the world's largest economies is rattling investors unnerved about a global economy that was already slowing and falling U.S. corporate profits.
The S&P 500 dropped 87.31 points, or 3%, to 2,844.74 for its worst loss since December, when the market was wrapped in the throes of recession fears. It was down as much as 3.7% in the afternoon.
The Dow Jones Industrial Average lost 767.27, or 2.9%, to 25,717.74, and the Nasdaq composite fell 278.03, or 3.5%, to 7,726.04.
"A 3% drop in a day is very significant, and you're seeing sizeable moves in every major foreign market," said Rich Weiss, chief investment officer of multi-asset strategies at American Century Investments.
"I am surprised at the market's surprise at China's retaliation," he said. "We started a fight, and when the opponent punches back, I'm not sure why we're surprised."
The sell-off began Monday in Asia, where indexes lost more than 1%, and intensified as it swept westward through Europe to the Americas. Investors in search of safety herded into U.S. government bonds, which sent yields plunging.
The yield on the 10-year Treasury note, which rises with expectations of stronger economic growth and inflation, fell to its lowest level since Trump's 2016 election energized markets, down to 1.72% from 1.85% late Friday. The yield on the two-year note, which is more influenced by interest-rate moves from the Federal Reserve, sank to 1.58% from 1.71%. Both are unusually large moves.
A warning light of recession in the bond market also began shining more brightly, which traders said may have added to the selling pressure on stocks. When short-term Treasury yields are higher than long-term rates, a rule of thumb says a recession may arrive in about a year. The three-month yield was at 2.00% Monday afternoon, 0.28 percentage points higher than the 10-year's yield. A month ago, it was 0.21 points higher.
"The market sell-off is showing that there is a severe lack of confidence that this is going to work out for us economically, at least in the short term," Weiss said.
Of course, the U.S. economy is still growing, the unemployment rate remains close to its healthiest level in nearly half a century and U.S. stock indexes set record highs just over a week ago. But the escalating trade tensions and investors' disappointment that the Federal Reserve didn't commit to a lengthy series of interest-rate cuts at its meeting last week have since sent the S&P 500 on a six-day losing streak, its longest since October. The S&P 500 is 6% below its record.
"A recession is still unlikely, but the probability of it is higher, still at less than 20%," said Nate Thooft, head of global asset allocation at Manulife Investment Management.