Stocks fell sharply on Wall Street on Friday after President Trump responded to China’s threat of new tariffs on American imports with an angry volley of tweets, helping to push the market to its fourth-straight weekly loss.
The S&P 500 dropped 2.6 percent, while the technology-heavy Nasdaq index fell 3 percent. The Dow Jones industrial average declined 2.4 percent.
Investors were on edge before trading started after Beijing vowed to answer the Trump administration’s next round of tariffs on Chinese goods by increasing tariffs on American imports.
Stocks opened trading lower after the announcement, but found their footing and began to move higher. Then, around 11 a.m., Mr. Trump took to Twitter.
“We don’t need China and, frankly, would be far better off without them,” he wrote in one message.
In another post, Mr. Trump said that American companies were “hereby ordered to immediately start looking for an alternative to China,” adding that he would respond to China’s tariff threat later in the day.
Around 5 p.m., Mr. Trump said would increase the existing tariffs on $250 billion of Chinese goods to 30 percent from the current 25 percent, beginning Oct. 1. He also said the United States would tax another $300 billion in Chinese imports at a rate of 15 percent rate, rather than the 10 percent he had initially planned to go into effect in September.
Almost immediately after the president’s late-morning tweets, shares began to dive as investors turned their attention away from the calming effects of a speech by Jerome H. Powell, the Federal Reserve chair, and back toward the trade war between the world’s two largest economies.
The trading on Friday was a prime example of the crosscurrents that are confounding investors. Throughout the year, stocks have tumbled on concerns about the continuing trade fight, only to be lifted by hopes that interest-rate cuts by the Fed would contain the damage caused by the conflict. More tariff threats from Beijing or Washington then start the cycle again.
The dynamic has done considerable damage to stocks in recent weeks. As recently as July 26, the S&P 500 was up almost 21 percent for the year. But after four consecutive weeks of losses, investors are sitting on a more modest 13.6 percent gain.
In his speech at a conference in Jackson, Wyo., Mr. Powell noted that rising uncertainty over the administration’s trade policy was a challenge for the central bank.
But he reiterated that the Fed would act as needed to keep a decade-plus expansion going. Financial market prices suggest that investors are certain the Fed will cut interest rates for a second time this year when it meets next month.
Mr. Powell’s speech did little to change those expectations, and stocks were largely unchanged afterward. Mr. Trump’s statements on Twitter drove the market sharply lower again.
Energy stocks experienced the steepest losses in the S&P 500, falling 3.4 percent, as crude oil prices dropped roughly 2 percent. Shares in technology companies and semiconductor makers, both of which have been especially sensitive to signs that the trade fight between China and the United States was worsening, tumbled. The S&P 500 technology sector lost 3.3 percent, while a popular index of semiconductor stocks fell 4.4 percent.
In its announcement on Friday, the Chinese government said it would retaliate against the Trump administration’s plans for two batches of tariffs on $300 billion in Chinese imports, on Sept. 1 and Dec. 15, with levies on $75 billion of American imports on the same schedule.
It was the latest move in a tit-for-tat battle that has shown growing signs of hurting the global economy. There is mounting evidence that the global industrial sector in particular is weakening. Germany, the Europe’s trade-sensitive economic engine, contracted in the second quarter. And growth in industrial production in China has fallen to its lowest level since 2002.
Concerns about economic growth have touched off a global rush of money into the safety of bond markets. That has pushed bond prices up, while driving yields sharply lower. Such drops suggest that investors are lowering their expectations for economic growth and inflation.
The trend continued on Friday, with the yield on the 10-year Treasury note plunging to 1.52 percent. The collapse in long-term Treasury bond yields this year has pushed them below yields on shorter-term debt, an unusual situation known as an inversion of the yield curve.
Yield-curve inversions are considered one of the most reliable, though not particularly timely, leading indicators that an economic downturn is coming. Every recession in United States in the past 60 years has been preceded by an inversion, with the economy typically falling into recession some time in the following 24 months.
SOURCE : https://www.nytimes.com/2019/08/23/business/stocks-market-tariffs.html