Stocks fall as rally gives way to US-China trade war worries

Stocks slumped Thursday and bond prices spiked after President Donald Trump surprised markets with a new 10% tariff on $300 billion worth of goods from China beginning next month.

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The news erased a broad rally on Wall Street, leading to the market’s fourth straight loss. Bond prices surged, sending yields sharply lower, as investors sought safety.

The price of U.S. crude oil skidded nearly 8%, its biggest drop in more than four years and a signal that investors fear the economy could slow down.

Investors were taken off guard by the tariff announcement because the White House had said a day earlier that Beijing had promised to buy more farm goods. That came just as the latest round of trade talks were ending.

Companies that rely heavily on doing business with China took the brunt of the selling Thursday. Electronics retailer Best Buy went from a slight gain to a drop of 10.8% in heavy trading. Apple went from a gain of 1.4% to a loss of 2.2%.

“Investors never like to be taken by surprise, and that’s what happened today,” said Sam Stovall, chief investment strategist at CFRA.

The S&P 500 index dropped 26.82 points, or 0.9%, to 2,953.56. The index has fallen for four straight days since setting an all-time high on Friday.

The Dow Jones Industrial Average fell 280.85 points, or 1%, to 26,583.42. The average briefly swung about 600 points as the sell-off intensified.

The Nasdaq composite lost 64.30 points, or 0.8%, or 8,111.12. The Russell 2000 index of small companies slid 23.84 points, or 1.5%, to 1,550.76.

The escalation in the long-running and costly trade dispute comes only a couple of days after both sides resumed negotiations. In a series of tweets, Trump noted that while the slow-moving trade talks have been “constructive,” China has not followed through on some prior agreements.

The new tariff would take effect Sept. 1. The U.S. has already applied tariffs of 25% on $250 billion worth of goods from China. Beijing has retaliated with tariffs on $110 billion in American goods, including agricultural products, in a direct shot at Trump supporters in the U.S. farm belt.

Unlike the earlier set of tariffs, which were meant to minimize the impact on ordinary Americans by targeting industrial goods, the new ones would affect a wide range of consumer products.

The tariff announcement came a day after Trump expressed frustration that the Federal Reserve isn’t cutting interest rates more aggressively.

The Fed cut its key interest rate for the first time in a decade Wednesday, citing uncertainty over the U.S. trade conflicts as a factor in the decision to lower rates in an otherwise healthy economy. However, Fed Chairman Jerome Powell suggested the central bank was not embarking on an extended cycle of cutting rates, as many investors had hoped.

Banks, industrials and consumer discretionary were among the hardest-hit sectors. Bank of America dropped 3.9%, Boeing slid 2% and Gap tumbled 7.9%.

Energy stocks also fell sharply as crude oil prices sank. Exxon Mobil fell 2.6%.

Utilities and real estate stocks rose as traders shifted money into more stable, high-yield stocks.

Prices for U.S. government bonds rose sharply, sending yields lower. The yield on the 10-year Treasury fell to 1.90%, the lowest level since the 2016 election. That yield, a benchmark used to set interest rates on mortgages and other loans, has been declining steadily since November, when it traded as high as 3.23%.

Meanwhile, the yield on the 2-year Treasury note slid to 1.73% from 1.87% late Wednesday, a very large move.

The latest jump in bond prices is signaling that investors still feel there is a risk of an economic downturn, said Michelle Girard, chief U.S. economist at NatWest Markets.

“The feeling remains that this is not going to be one-and-done and the Fed is still going to have to lower rates again this year,” Girard said.

The price of U.S. crude oil skidded 7.9%, the largest drop since February 2015.

Traders continued to pore over a steady flow of corporate earnings Thursday, with several big-name companies reporting surprisingly good results. The latest round of reports has been better than Wall Street initially expected just a month ago.

Investors still have some key financial reports to look out for this week. Oil companies Exxon and Chevron will report results on Friday. The government will also release its employment report for July on Friday.

Qualcomm fell 2.7% after the chipmaker gave investors a surprisingly weak profit and revenue forecast because of problems in China. A ban on exports to China’s Huawei, which is part of the ongoing trade war between the U.S. and China, is hanging over the company.

The price of benchmark U.S. crude oil fell $4.63 to settle at $53.95 a barrel. Brent crude oil, the international standard, sank $4.55 to close at $60.50 a barrel.

Wholesale gasoline fell 11 cents to $1.75 per gallon. Heating oil declined 11 cents to $1.85 per gallon. Natural gas fell 2 cents to $2.20 per 1,000 cubic feet.

Gold fell $5.20 to $1,420.90 per ounce, silver fell 23 cents to $16.12 per ounce and copper was unchanged at $2.66 per pound.

The dollar fell to 107.33 Japanese yen from 108.77 yen on Wednesday. The euro strengthened to $1.1082 from $1.1085.

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AP Business Writer Damian J. Troise contributed to this report.

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