Stocks drop as U.S.-China trade war escalates

The Dow Jones industrial average sank more than 600 points Monday as investors sought shelter from the escalating U.S.-China trade war.

The selling was widespread and heavy, handing the benchmark Standard & Poor’s 500 index its biggest loss since January. The sell-off extended the market’s slide into a second week. The losses so far in May have now erased the market’s April gains.

Technology companies, which do a lot of business with China, led the way down Monday. Chipmakers were among the biggest decliners. Apple also took heavy losses, tumbling 5.8%. Farming equipment maker Deere drove losses in the industrial sector.

The United States and China had seemed to be on track to resolve their trade dispute. Hopes for a resolution had helped push the market to its best yearly start in decades.

Those hopes are now replaced by concerns that the trade war could crimp what is otherwise a mostly healthy economy.

“The larger issue with the tariffs isn’t the specific amounts of tariffs at any given time, but the uncertainty that’s surrounding these tariffs and the ‘what’s next?’ of an escalating trade war,” said Willie Delwiche, investment strategist at Baird. “That weighs on the global economy and could then weigh on the U.S. economy.”

The Dow sagged 617.38 points, or 2.4%, to 25,324.99. Earlier in the day it was down 719 points. Apple and Boeing were the Dow’s biggest decliners. Both companies get a significant amount of revenue from China and stand to lose heavily if the trade war drags on. Boeing slid 4.9%.

The broader S&P 500 index declined 69.53 points, or 2.4%, to 2,811.87. The index is coming off its worst week since January, though it’s still up sharply for the year.

The Nasdaq composite, which is heavily weighted with technology stocks, slid 269.92 points, or 3.4%, to 7,647.02, its biggest drop of the year.

The Russell 2000 index of smaller-company stocks dropped 49.99 points, or 3.2%, to 1,523.

A round of U.S.-China trade talks concluded Friday with no agreement and with the United States increasing import tariffs on $200 billion worth of Chinese goods to 25% from 10%. Officials also said they were preparing to expand tariffs to cover an additional $300 billion worth of goods.

On Monday, China announced tariff increases on $60 billion worth of U.S. imports, particularly farm products such as soybeans. The price of soybeans slid 0.8% to $8.04 a bushel. They were trading around $9 a bushel last month and are now at their lowest price since December 2008. The falling price has put pressure on U.S. farmers.

Analysts have said investors should prepare for a more volatile stock market while the trade dispute deepens. Many are still confident both sides will eventually reach a deal.

“Since we see a trade accord being reached in the not-too-distant future, we don’t expect the market to endure more than a short-lived spate of indigestion,” said Sam Stovall, chief investment strategist at CFRA.

Technology stocks took the heaviest losses Monday. Microchip Technology dropped 6.3% and Advanced Micro Devices sank 6.2%.

Some of the biggest chipmakers in the United States lean heavily on China for their sales, making them particularly vulnerable to the worsening tensions between the two countries. With China now retaliating against the Trump administration’s tariffs, it has become more likely the chip sector will be caught in the crossfire and take a hit to their profits.

The list of chipmakers that get at least one-quarter of their revenue from China include Qualcomm (65%), Micron (57%), Texas Instruments (43%), Microchip Technology (29%), Intel (26%) and Xilinx (25%), according to FactSet Research.

Bank stocks also fell sharply. Bank of America dropped 4.5%. JPMorgan Chase fell 2.7%.

Tesla slid 5.2% as investors bet that cars crossing between the United States and China will soon be subject to bigger tariffs. Motor vehicles were left off China’s Monday list of U.S. goods that will face additional tariffs, but the respite may not last.

Traditionally safer-play holdings were the only winners as traders sought to reduce their exposure to risk. The utilities sector was the only one to notch a gain. Prices for U.S. government bonds, which are considered ultra-safe investments, rose sharply, sending yields down. The yield on the 10-year Treasury fell to 2.40% from 2.45%.

In another sign of how nervous investors were feeling, the VIX — an index known as Wall Street’s fear gauge, which measures how much volatility the market expects in the future — leaped 28.1%. But it is still far below the elevated levels it reached at the end of last year when the S&P 500 came extremely close to entering a bear market, a decline of 20% or more from a recent peak.

The deteriorating trade negotiations follow what has been a mostly calm period of trading when solid economic data and corporate earnings helped push the market steadily higher. The S&P 500 is still up 12.2% for the year, with technology stocks still boasting an 18% gain.

First-quarter corporate earnings reports have been better than expected. Instead of a sharp contraction, profits for companies in the S&P 500 are down less than 1%. However, the fallout from the trade war could spoil an expected earnings recovery in the second half.

“Investors are increasingly worried an anticipated second-half profit rebound may now evaporate as President Trump’s threat to tariff the remaining $325 billion in Chinese imports would disproportionately target consumer products like iPhones, thereby posing a greater threat to the consumption-driven U.S. economy,” said Alec Young, managing director of global markets research at FTSE Russell.

Elsewhere in the market, generic drug developers slumped after many of them were accused of artificially inflating and manipulating prices. A lawsuit from attorneys general in more than 40 states alleges that for many years the makers of generic drugs worked together to fix prices. Shares of Teva, which was specifically mentioned, sank 14.8%. Mylan skidded 9.4%

Ride-hailing company Uber tumbled another 10.8% on its first full day of trading following its rocky stock-market debut Friday. The stock had priced at $45 a share at its initial public offering. It closed Monday at $37.10.

Gold mining companies rose as the price of gold, another traditionally safer-play asset, rose 1.1% to $1,301.80 an ounce. Newmont Goldcorp shares rose 2.5%.

Energy futures finished mostly lower. U.S. crude fell 1% to settle at $61.04 a barrel. Brent crude, the international standard, fell 0.6% to $70.23 a barrel.

Wholesale gasoline slid 1.3% to $1.96 a gallon. Heating oil fell 0.6% to $2.04 per gallon. Natural gas inched up 0.1% to $2.62 per 1,000 cubic feet.

Silver slipped 0.1% to $14.78 an ounce. Copper rose 2% to $2.72 a pound.

The dollar fell to 109.34 yen from 109.90 yen. The euro held steady at $1.1231.

Bloomberg was used in compiling this report.