Investors fret over Turkey, pulling down U.S. stocks

Stocks in the United States and Europe skidded Friday as investors worried about the financial stability of Turkey and how it might affect the global banking system.

Turkish President Recep Tayyip Erdogan has accumulated more and more control over the country’s central bank as well as its financial system, which is now run by his son-in-law. Turkey’s currency is plunging, and the country is in a diplomatic spat with the U.S., a major trading partner.

Alex Dryden, global markets strategist for JPMorgan Asset Management, said Erdogan showed no signs of changing course Friday, and investors are losing hope Turkey’s government has the knowledge or independence needed to handle the nation’s financial problems.

Dryden and other analysts say Turkey’s problems aren’t a major risk to the financial system, but on Friday, investors didn’t wait to find out. They sold stocks and bought U.S. dollars and government bonds. The bond purchases pushed down interest rates, which hurt banks. The dollar got stronger, partly because the Turkish lira nosedived, and major exporters such as technology, basic materials and industrial firms sank.

The Standard & Poor’s 500 index slid 20.30 points, or 0.7%, to 2,833.28. That was its biggest loss in a month and ended its five-week winning streak. The Dow Jones industrial average dropped 196.09 points, or 0.8%, to 25,313.14. The Nasdaq composite slid 52.67 points, or 0.7%, to 7,839.11, ending its eight-day winning streak.

The Russell 2000 index edged down 4.08 points, or 0.2%, to 1,686.80. The companies in that index are less reliant on exports, and the stronger dollar makes their imports less costly.

Investors are concerned about Erdogan’s economic views. He says higher interest rates lead to higher inflation — the opposite of what standard economic theory says — and has pushed Turkey’s central bank to keep interest rates low, threatening its independence and preventing it from shoring up the lira.

The United States is the biggest importer of Turkish steel, and on Friday, President Trump said he will authorize higher tariffs on steel and aluminum from Turkey. That sent the lira down even further. It’s down 40% this year against the dollar.

The U.S. sanctions come after Turkey arrested an American pastor and put him on trial for espionage and terror-related charges.

Bond prices jumped. The yield on the 10-year Treasury note fell to 2.87% from 2.93%. That hurt bank stocks. Citigroup slid 2.4% to $70.26.

Emerging-market currencies fell, and the dollar jumped. The ICE U.S. Dollar Index, already around annual highs, rose an additional 0.9%, a large move.

Benchmark U.S. crude oil rose 1.2% to $67.63 a barrel. Brent crude, the standard for international oil prices, rose 1.1% to $72.83 a barrel. Wholesale gasoline rose 2% to $2.04 a gallon. Heating oil rose 1.3% to $2.14 a gallon. Natural gas fell 0.4% to $2.94 per 1,000 cubic feet.

Online discount retailer Overstock.com surged 7.9% to $41.65 after it said private equity firm GSR Capital will make an investment in its blockchain business.

Dropbox sank 9.8% to $31.05 after the online filesharing company said its chief operating officer will step down in September.

TrueCar leaped 12.4% to $12.79 after the online carshopping firm posted results that relieved investors.

Gold fell 0.1% to $1,219 an ounce. Silver fell 1.1% to $15.30 an ounce. Copper fell 0.8% to $2.74 a pound.