Stocks fell sharply on Monday as a trade war between the world’s largest economies intensified with China retaliating against the U.S.′ latest move.
The Dow Jones Industrial Average plunged 524 points, while the S&P 500 dropped 2%. The Nasdaq Composite lagged, dropping 2.6%. The Nasdaq was on track to fall for a sixth straight session, which would be its longest losing streak since late 2016. The S&P 500 headed for a six-day losing streak as well.
The major indexes have also fallen more than 5% from their record highs set last month.
Trade bellwethers Caterpillar and Boeing dropped 1.7% and 1.7%, respectively. Semiconductor stocks liked Micron Technology, Skyworks Solutions and Advanced Micro Devices fell at least 3.2%.
Apple shares slid 4.1%. Nike dropped 1.6%. Retail stocks like Etsy, Abercrombie & Fitch and Stitch Fix all fell at least 4.5%. Office Depot slid 8.3%. Party City fell 6.9%. Macy’s and Best Buy slid 6.7% and 4.6%, respectively. The SPDR S&P Retail ETF (XRT) traded 2.9% lower. FedEx dropped 4.6%.
“Now we have a trade situation that is going off the rails as the side effects multiply due to the ramping up of the use of tariffs and we are only further apart from any resolution with the Chinese,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “The policy of using tariffs as a tool to address our legitimate beefs with the Chinese has failed miserably.”
China, which has historically controlled its currency, the yuan, allowed it to fall to its lowest level against the dollar in more than a decade. The onshore yuan broke above 7 per U.S. dollar and traded at 7.04.
President Donald Trump later accused China of manipulating its currency, noting in a tweet: “This is a major violation which will greatly weaken China over time.”
China “appears to have decided that, given the increasingly dim prospects of a trade deal with the US, the boost to China’s export sector from currency depreciation is worth attracting the ire of the Trump,” Julian Evans-Pritchard, senior China economist at Capital Economics, wrote in a note. “The fact that they have now stopped defending 7.00 against the dollar suggests that they have all but abandoned hopes for a trade deal with the US.”
Bloomberg News also reported China has asked state-owned companies to suspend U.S. agricultural imports.
These moves come after Trump announced last week the U.S. would impose a 10% tariff on $300 billion worth of Chinese imports. The tariff will take effect on Sept. 1. Trump’s announcement came after Chinese and U.S. officials discussed trade earlier last week as the two countries tried to restart talks.
That tariff would target retail, along with other consumer goods from companies like Apple. The tech giant told U.S. Trade Representative Robert Lighthizer in a June letter that tariffs on this tranche of goods would hit “all of Apple’s major products,” hindering the company’s contributing to the economy.
The news pushed the S&P 500 to its worst weekly performance of the year. The S&P 500 dropped 3.1% last week. The Dow had its second-biggest weekly drop of 2019 last week, sliding 2.6%.
Investors rushed to traditional safe havens like Treasurys and gold on Monday amid the uncertainty. The benchmark 10-year Treasury yield fell to 1.76% and reached its lowest level since November 2016. Gold futures for December delivery gained 1.4% to trade at $1,477.90 per ounce.
The Cboe Volatility Index (VIX), widely considered to be the best fear gauge in the market, jumped 23% to 21.68.
European shares fell broadly. The Stoxx 600 index slid 2%. The German Dax dropped 1.6% while the French CAC 40 pulled back 1.8%.