Stocks dive on trade war fears following China sanctions
Stocks plunged Thursday after the Trump administration slapped sanctions on goods and investment from China. The Dow Jones industrial average dropped more than 700 points as investors feared that trade tensions between the world’s largest economies would escalate.
The planned sanctions include tariffs on $48 billion worth of Chinese imports as well as restrictions on Chinese investments. Trump said he’s taking those steps in response to theft of American technology, and the Chinese government said it will defend itself. Investors are worried that trade tensions would hurt U.S. companies and harm the world economy.
On Thursday they fled stocks and bought bonds, which sent bond prices higher and yields lower. With interest rates falling, banks took some of the worst losses. Technology and industrial companies, basic materials makers and health care companies also fell sharply.
Peter Donisanu, an investment strategy analyst for the Wells Fargo Investment Institute, said the risk of a damaging trade war is still low because the Trump administration is targeting specific goods that aren’t central to China’s economy. That could change if it puts tariffs on products like electronics or appliances imported from China. “If the Trump administration really wanted to hurt China and start a trade war, then they would go after those larger sectors,’’ he said. Still, Donisanu said that after last year’s rally, investors are looking for new reasons to feel optimistic about stocks. With trade tensions in focus over the last month, they’ve had trouble finding any.
The S&P 500 index skidded 68.24 points, or 2.5 per cent, to 2,643.69. The Dow Jones industrial average sank 724.42 points, or 2.9 per cent, to 23,957.89. The Nasdaq composite gave up 178.61 points, or 2.4 per cent, to 7,166.68. The Russell 2000 index of smaller-company stocks lost 35.43 points, or 2.2 per cent, to 1,543.87. Construction equipment maker Caterpillar fell $8.90, or 5.7 per cent, to $146.90, for its worst loss since mid-2016. Aerospace company Boeing slid $17.49, or 5.2 per cent, to $319.61.
Investors also sold some of the market’s biggest recent winners. Among technology companies, Microsoft fell $2.69, or 2.9 per cent, to $89.79 and Alphabet, Google’s parent company, fell $40.85, or 3.7 per cent, to $1,053.15. Online retailer Amazon slid $36.94, or 2.3 per cent, to $1,544.92.
Earlier this month the Trump administration ordered tariffs on imported steel and aluminum, and stocks dropped as investors worried about the possibility of tougher restrictions on international trade and smaller profits for corporations.