Trade talks with China sour and U.S. companies take hit
New York – U.S. stocks fell in morning trading Monday, following a sell-off in Europe and Asia, after President Donald Trump threatened to escalate a trade war between the world’s two largest economies.
Investors have been expecting the U.S. and China to resolve their damaging trade dispute, with the two sides set to meet this week in Washington. Hopes for an accord have contributed to the big run-up in stock prices in the U.S. and China so far this year.
The latest threat shifted stocks into reverse Monday after the S&P 500 and Nasdaq indexes set records last week.
The Dow Jones Industrial Average fell 195 points, or 0.7%, as of 11:22 a.m. It was down as much as 471 in the first few minutes of trading.
The S&P 500 index dropped 0.8% and the Nasdaq slid 0.9%.
Trump on Sunday threatened to raise tariffs on imports from China to 25% from 10% after complaining that trade talks were moving too slowly. He also threatened to impose tariffs on another $325 billion in imports from China, covering everything the country ships annually to the United States.
Tariffs currently in place have already raised costs on goods for companies and consumers.
U.S. companies with heavy business interests in China are getting hit the hardest, particularly technology and industrial companies. Banks also fell sharply.
Every sector, from industrial companies to retailers, was under pressure. Chipmakers and technology companies suffered the most.
Qualcom gets 64.7% of its revenue from China, according to data provider FactSet, and its stock fell 2.2%. Broadcom fell 2% and Apple fell 2.1%.
Micron Technology Inc., Advance Micro Devices Inc. and Applied Materials Inc. all fell more than 3%.
Industrial behemoth Caterpillar fell 2.4%, while Deere & Co. fell 3.9%.
Wynn Resorts, with a host of casinos and hotels in Macau, gets about 75% of its revenue from China, according Its stock tumbled 4.8%.
Investors fled to safer holdings. Bond prices rose sharply, sending yields lower, and safe-play stocks like utilities, real estate companies and makers of consumer products held up much better than the rest of the market.
Chinese indexes plunged. The Shanghai Composite index closed 5.6% lower and Hong Kong’s Hang Seng index sank 2.9%. European indexes fell broadly.
Oil prices, which have been steadily rising all year, fell slightly. Benchmark U.S. crude lost 0.2% per barrel.
Shares of Chinese companies that trade in the U.S. also fell. J.D.com slid 5.7% while internet search company Baidu dropped 2.1%.
Investors have been digesting mixed reports about the negotiations for months and have largely discounted concerns about a failure in negotiations. The broader market has been posting gains all year on encouraging economic growth and solid corporate earnings results.
“We see the weekend’s developments as a negative catalyst for the market, not only because of where investor expectations have been regarding the deal, but because of the downward earnings revisions that are likely to occur if the tariffs are expanded,” said Lori Calvasina, head of U.S. equity strategy at RBC Capital, in a note to clients.
Boeing fell 1.3% after it disclosed that it did not warn airlines about a faulty safety alert until after one of its planes crashed.
The sensors malfunctioned during an October flight in Indonesia and another in March in Ethiopia, causing software on the plane to push the nose down. Pilots were unable to regain control of either plane, and both crashed, killing 346 people.
Boeing said Sunday that it discovered after airlines had been flying its 737 Max plane for several months that a safety alert in the cockpit was not working as intended, yet it didn’t disclose that fact to airlines or federal regulators until after one of the planes crashed.
Anadarko Petroleum Corp. rose 3.6% after Occidental revised its buyout offer to include more cash. Occidental is still offering $76 per share, but that now involves $59 per share in cash instead of $38.