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Wall St. skids, jolted by Trump's surprise tariff threat on Mexico

Published 05/31/2019, 06:20 PM
Updated 05/31/2019, 06:20 PM
© Reuters. Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York

© Reuters. Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York

By Chuck Mikolajczak

NEW YORK (Reuters) - U.S. stocks dropped on Friday, 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 fueled fears that a trade war on multiple fronts could lead to a recession.

Washington will impose a 5% tariff from June 10, which would rise steadily to 25% until illegal immigration across the southern border was stopped, Trump tweeted late on Thursday.

Mexican President Andres Manuel Lopez Obrador responded by urging his U.S. counterpart to back down.

"It really is applying a trade tariff to a national security issue and that is different," said Christopher Smart, head of Barings Investment Institute in Boston.

"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%, to 24,815.04, the S&P 500 lost 36.8 points, or 1.32%, to 2,752.06 and the Nasdaq Composite dropped 114.57 points, or 1.51%, to 7,453.15.

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%, the S&P 500 dropped 2.62% and the Nasdaq declined 2.41%. 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%, the S&P 500 dropped 6.58%, the Nasdaq declined 7.93% to mark the first monthly decline of the year for each index.

Investors have grown more worried about deteriorating trade talks between the United States 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.

U.S. Treasury yields fell to new multi-month lows. Benchmark 10-year note yields dropped as low as 2.128 percent, the lowest since September 2017.

The yield curve, as measured in the gap between three-month and 10-year 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%.

U.S. carmakers and manufacturers were also pulled lower. General Motors Co (NYSE:GM) dropped 4.25% and Ford Motor (NYSE:F) Co 2.26%, pushing the consumer discretionary sector down 1.44%.

Adding to the downbeat mood, Beijing warned on Friday that it would unveil an unprecedented hit-list of "unreliable" foreign firms, as a slate of retaliatory tariffs on imported U.S. goods was set to kick in at midnight. Tariff-sensitive industrials declined 1.46%.

Data showed U.S. 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 Inc (NYSE:GPS) tumbled 9.32% as the worst performer on the S&P 500 after the apparel retailer cut its 2019 profit forecast.

Constellation Brands (NYSE:STZ), which has substantial brewery operations in Mexico, slid 5.79%.

Declining issues outnumbered advancers on the NYSE by a 2.52-to-1 ratio; on Nasdaq, a 3.20-to-1 ratio favored 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.

© Reuters. Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York

About 7.92 billion shares changed hands in U.S. exchanges, compared with the 7.01 billion daily average over the last 20 sessions.

Latest comments

Wall Street put a resistance last year, later after an induced drop have a nice rally but was having the last breath. Otherwise something big happen, I don't see it coming, is done. Trump now is working for the elections trying to get results, or quasi, about his promises. Don't cry just take the things like grown traders.
Still waiting for 1990 on s p . Wish it would hurry and get here.
Soon the dollar will be backed by gold again. MAGA
wont be as valuable them
For sure we need more trophy wives migration from Slovakia. I am sure thats is good for the country.
should deport his wife, ex wife and and their families as these women came in illegally
It's a 5% tariff, which is almost nothing. Illegal immigration does effect the economy as well. Low skilled workers flooding across the border puts downward pressure on low skilled wages. I honestly don't see why Democrats don't see this as a threat to workers.
This has to be the first President in history to tax the lower class (with tariffs) so much and they then convinces them that it will help them. Sad to watch his base get taken advantage of him like that. Very sad.
with the US having all its border guards and technology in hand and they can't stem the flow, how is Mexico supposed to? This only proves that the US cannot be trusted at all as fast as business is concerned
good cause you cant depend on this US government
Worth reading: opinion from Mr.Bloomberg -Stop Trump on Trade https://www.bloomberg.com/view/articles/2019-05-31/mexico-tariffs-trump-s-latest-move-on-trade-is-dangerous
mrTrump president of USA, not stock market. His duty - security and international relations. about stock call to FED
Trump 2020, i like it, coz it will lead US to death
Yeah, a president doesn’t need to worry about businesses and how it affects the economy. He just needs to demand ransoms from other countries to “balance things out” via tariffs. Who needs strategy and diplomacy?
Make America poor again. Trump has been so proud how well the stock market performed during his presidency. And what happens now? We don’t see him brag about it anymore lol. Speed up the impeachment process to end all this irresponsible child’s play.
I don’t know about Mr. president, but I surely do not feel comfortable living in a world of hatred. I see what he’s trying to achieve. He wants the US to take all the advantage at the expense of others. A real wise man thinks of ways for everyone to prosper and not by begger-thy-neighbour approach. What is the point of one doing so well while the rest around you is not?
I think what he is doing now creates even more class / racial / economic segregation. Social instability and war come from survivorship issues. Think why Germany got WWII started?When constantly pushing someone to a corner, you are leaving them no choice but to fight back. This is just natural animal instinct.
True leaders share successes and own the failures. This leader owns all the successes and blames everyone else on failures. Very sad his base doesnt see that.
the wall , Obamacare, North Korea, China, Japan and now Mexico Make America great again.Nothing done ¿¿¿‽
Trump openjng another big fat short position ahead of his tweet
exactly
Hope he really does. When he's booted out of office there'll be a nice long sentence in the finest penitentiary waiting for him to complete.
True
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