— The Dow Jones Industrial Average fell 186 points, or 0.7%, to 26322, easing off of session lows after falling more than 450 points in early trading. The S&P 500 shed 0.7% and the tech-heavy Nasdaq Composite dropped 0.9%. Ten of the 11 S&P 500 sectors dropped, led by declines in industrials, materials technology-—three areas with heavy exposure to China. Nearly all of the 30 stocks that make up the Dow industrials also fell.
Stock markets in Asia and Europe slid, oil prices declined and the Chinese yuan weakened after President Trump threatened to ramp up U.S. tariffs on $200 billion in Chinese imports to 25%, up from the current 10%. That put an accord between the two countries in doubt ahead of a new round of talks set to begin this week in Washington.
China’s delegation was preparing to go to the U.S. for the talks, the foreign ministry spokesman said Monday, adding that the Chinese government hoped both sides could work together to reach an agreement after threats repeatedly rose in the past.
Jitters over the trade battle revived worries that tensions would take a toll on corporate profits, undermining strong U.S. growth, some analysts and traders said. The abrupt moves—following months of relative tranquility—showed investors are still sensitive about the possibility of deteriorating commercial relations between the world’s two largest economies.
Traders braced for further volatility ahead. The Cboe Volatility Index, which measures investors’ expectations for stock swings, jumped 31% to 16.92—on pace for its highest closing level since Jan. 30 and its highest percentage rise since Oct. 10.
“Markets don’t like to be surprised, but we still need more time with this story because it comes with a backdrop of a super strong economy,” said Michael Antonelli, market strategist at investment bank Robert W. Baird & Co. “I’m still willing to give it the benefit of the doubt that this could be a negotiating tactic. This is going to bring back volatility, but it’s always darkest before the dawn.”
The renewed trade tensions come after stocks have rebounded to fresh records, recovering from last year’s bruising fourth-quarter selloff. Stocks rallied Friday after data showed the U.S. labor market added more jobs than expected in April. Industrial shares, which have been susceptible to trade-induced volatility, came under pressure. Caterpillar, Boeing and Stanley Black & Decker shed at least 1.2% each.
Meanwhile, shares of semiconductor companies, which have been caught in the crosshairs of the trade battle, were battered Monday, with stocks such as Advanced Micro Devices, Micron Technology and Nvidia each losing at least 2.7% a piece. Semiconductor shares are vulnerable to a trade war because China is a strong driver for the chip-equipment sector.
Apple dropped 1.2% while Facebook and Netflix fell 1.3% and 1.6%, respectively.
Monday’s volatile drops follow months of relative calm, after a turbulent 2018 left investors scarred. Stocks, bonds and credit markets rose in 2019, with U.S. equities recently touching all-time highs. The S&P 500, for example, added 16% this year. Markets observers had said optimism about U.S.-China trade talks helped underpin that climb.
“This is not good news for Chinese companies that are already dealing with headwinds from high indebtedness, slowing domestic growth, and now tougher external conditions as well as the rest of the world,” said Trinh Nguyen, a Hong Kong-based senior economist for emerging markets at Natixis . “Particularly for countries that rely on China demand such as South Korea, Germany, and Australia.”
Brent crude, the global oil benchmark, ticked up 0.1% to $70.90 a barrel while West Texas Intermediate dipped 0.1% to $61.86 a barrel. “Trump’s latest tweet on trade talks with China has sparked a risk-off environment,” said Giovanni Staunovo, a commodity analyst at UBS in Switzerland, adding that concerns of slowing global economic growth and subsequently lower oil demand weighed on prices.
Investors edged into safe assets, with gold adding 0.1% to $1280.20 a troy ounce, and the Japanese yen adding 0.2% against the greenback.
The WSJ dollar index, which tracks the currency against a basket of 16 of its peers, added 0.2%. The yield on the benchmark 10-year Treasury note fell to 2.493% from 2.531% Friday. Yields move inversely to prices.
Elsewhere, Hong Kong’s Hang Seng Index dropped more than 3% while Europe’s pan-continental Stoxx Europe 600 lost 1.2%. The Shanghai Composite Index fell 5.6%, while its counterpart in Shenzhen tumbled 7.4%, both registering their biggest single-day declines since 2016.