Those hopes are now being dashed and replaced by concerns that the trade war could stunt what has already been slow and fragile economic growth. Analysts have warned that the deterioration in relations and the potential for the worst-case scenario of failed trade talks will put a dent in the U.S. and China’s economic prospects.
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The Dow Jones Industrial Average dove 584 points, or 2.2%, to 25,361 as of 10 a.m. Boeing and Apple did the most to pull the index lower. Both companies get a significant amount of revenue from China and stand to lose heavily if the trade war drags on.
The broader S&P 500 index fell 2.3%. The benchmark index is coming off its worst week since December, but is still up sharply for the year. The technology heavy Nasdaq fell 3%.
Technology stocks are bearing the heaviest losses. Apple fell 5.7% and Cisco fell 3.6%. Chipmakers and other technology companies have warned that uncertainty over the trade war’s outcome is prompting a slowdown in orders.
Bank stocks also fell sharply. Bank of America shed 3.5% and JPMorgan Chase fell 2.7%.
Safe-play holdings were the only winners as traders sought to reduce their exposure to risk. Utilities were the only sector to rise on the stock market, and prices for U.S. government bonds, which are considered ultra-safe investments, rose sharply, sending yields lower. The yield on the 10-year Treasury fell to 2.40% from 2.45% late Friday.
Overseas markets also fell. European indexes were down a bit more than 1%. In Asia, the Shanghai Composite index fell 1.2%. Japan’s Nikkei 225 index gave up 0.7% and South Korea’s Kospi fell 1.4%.
Trade talks between the U.S. and China concluded Friday with no agreement and with the U.S. increasing import tariffs on $200 billion of Chinese goods to 25% from 10%. Officials also said they were preparing to expand tariffs to cover another $300 billion of goods.
China on Monday announced tariff increases on $60 billion of US imports.
Analysts have said investors should prepare for a more volatile stock market while the trade dispute deepens. Many are still confident that 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.
The deteriorating trade negotiations follow what has been a mostly calm period of trading where solid economic data and corporate earnings helped push the market steadily higher. The S&P 500 is still up 12.5% of the year with technology stocks blowing away rest of the market with 19% gains.