Coverage: Stock markets drop on trade war

The Dow Jones Industrial Average dropped more than 600 points Monday as investors sought shelter from an escalating trade war between the U.S. and China.

Damian Troise and Alex Veiga of the Associated Press had the news:

The selling was widespread and heavy, handing the benchmark S&P 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 gains from April.

Technology companies, which do a lot of business with China, led the way lower. 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 world’s two largest economies had seemed to be on track to resolve the ongoing trade dispute that has raised prices for consumers and pinched corporate profit margins. Hopes for a resolution had helped push the market to its best yearly start in decades.

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

Fred Imbert of CNBC.com reported that the drop was the worst since January:

At its lows of the day, the Dow fell as much as 719.86 points while the S&P 500 and Nasdaq traded down 2.8% and 3.6%, respectively, at their session lows. The indexes came off their lows in afternoon trading after President Donald Trump said he had not decided whether to slap tariffs on an additional $325 billion in Chinese goods.

“I think this is a prelude of things to come,” said Phil Blancato, CEO of Ladenburg Thalmann Asset Management. “We should expect more volatility for the foreseeable future.”

To stem the downturn, “you’d have to see China really come back to the table. The rhetoric we saw this morning tells you that’s not where they’re at,” he said.

China will hike tariffs on $60 billion worth of U.S. imports, starting on June 1. The goods targeted include a broad range of agricultural products. This comes after Trump raised tariffs on Chinese imports last week. China said in a statement that the U.S. decision jeopardized the interests of both countries and does not meet the “general expectations of the international community,” according to a Google translation.

Stephen Culp of Reuters reported that investors sought safer investments:

“The market’s realizing that this was an absolute breakdown of (trade) talks and everything is gone backwards,” said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.

“It could be very bad,” O’Rourke added. “There’s a lot of uncertainty. This should lead to further slowing in the economy.”

Investors responded by fleeing equities for safe-haven assets.

U.S. Treasury yields fell to six-week lows, with 10-year yields falling below those of 3-month bills, an inversion seen by many as a potential harbinger of recession.

Gold prices rose to a near three-month high.