US stocks have dropped as the S&P 500 closed out the month with its biggest May slump since 2010, after President Donald Trump’s surprise threat of tariffs on Mexico fuelled fears that a trade war on multiple fronts could lead to a recession.
Washington will impose a five per cent tariff from June 10, which would rise steadily to 25 per cent until illegal immigration across the southern border was stopped, Trump tweeted late on Thursday.
Mexican President Andres Manuel Lopez Obrador responded by urging his US counterpart to back down.
Christopher Smart, head of Barings Investment Institute in Boston, said the tariff threat broke new ground.
“It really is applying a trade tariff to a national security issue and that is different,” he said.
“That is the issue and now what country is not vulnerable to tariffs or what political, diplomatic or national security issue won’t now include the threat of tariffs to resolve. So if you are an investor this is a significantly different world.”
The Dow Jones Industrial Average fell 354.84 points, or 1.41 per cent, to 24,815.04 on Friday, the S&P 500 lost 36.8 points, or 1.32 per cent, to 2752.06 and the Nasdaq Composite dropped 114.57 points, or 1.51 per cent, to 7453.15.
Both the S&P 500 and Nasdaq closed below their 200-day moving averages for the first time since March 8, seen as a strong technical support level that could presage further losses.
For the week, the Dow fell 3.01 per cent, the S&P 500 dropped 2.62 per cent and the Nasdaq declined 2.41 per cent. The weekly decline was the sixth straight for the Dow, its longest weekly losing streak since 2011. For the month, the Dow fell 6.69 per cent, the S&P 500 dropped 6.58 per cent, the Nasdaq declined 7.93 per cent to mark the first monthly decline of the year for each index.
Investors have grown more worried about deteriorating trade talks between the US and China and have sought safety in government bonds. Technology and energy have been among the hardest hit sectors since May 3 as Trump ramped up tariff threats with Beijing.
US Treasury yields fell to new multi-month lows. Benchmark 10-year yields dropped as low as 2.128 per cent, the lowest since September 2017.
The yield curve, as measured in the gap between three-month and 10-year bond yields, remained deeply inverted. Some investors view this as a sign a recession is likely in one to two years.
Of the 11 major S&P sectors, only defensive plays utilities and real estate were on the plus side while eight were showing drops of more than 1 per cent.
US car makers and manufacturers were also pulled lower. General Motors dropped 4.25 per cent and Ford Motor 2.26 per cent, pushing the consumer discretionary sector down 1.44 per cent.
Adding to the downbeat mood, Beijing warned on Friday it would unveil an unprecedented hit-list of “unreliable” foreign firms, as a slate of retaliatory tariffs on imported US goods was set to kick in at midnight. Tariff-sensitive industrials declined 1.46 per cent.
Data showed US consumer prices in April increased by the most in 15 months, but a cooling in spending pointed to a slowdown in economic growth that could moderate inflation pressures.
Among other stocks, Gap tumbled 9.32 per cent as the worst performer on the S&P 500 after the apparel retailer cut its 2019 profit forecast.
Constellation Brands, which has substantial brewery operations in Mexico, slid 5.79 per cent.
Declining issues outnumbered advancers on the NYSE by a 2.52-to-1 ratio; on Nasdaq, a 3.20-to-1 ratio favoured decliners.
The S&P 500 posted four new 52-week highs and 52 new lows; the Nasdaq Composite recorded 12 new highs and 210 new lows.
About 7.75 billion shares changed hands in US exchanges, compared with the 7.01 billion daily average over the last 20 sessions.