The S&P 500 fell two percent after US President Donald Trump broke a months-long calm on Wall Street by threatening to raise tariffs on China. A key indicator of Wall Street's health is heading for its worst deterioration since April.
The Dow Jones Industrial Average fell 622 points and the Nasdaq fell 2.7%. Stocks showed slight gains in the morning until Trump took to his social media platform to say he was considering a massive tariff hike on Chinese imports.
He's upset about restrictions China has placed on exports of its rare earth metals, materials that are critical to making everything from consumer electronics to jet engines.
“We have been contacted by other countries who are extremely unhappy about this huge trade hostility that has come out of nowhere,” Trump wrote on Truth Social. He also said there “seems to be no reason now” to meet with Chinese leader Xi Jinping, after previously agreeing to do so as part of an upcoming trip to South Korea.
Rising tensions between the world's two largest economies led to a broad decline on Wall Street, with about four out of every five S&P 500 stocks falling. Everything fell, from big tech companies like Nvidia and Apple to smaller company stocks looking to navigate uncertainty over tariffs and trade.
US shares were already widely criticized for running too high after an almost relentless 35% rally from a low in April sent the S&P 500 to record highs.
Critics say the market looks too expensive after prices rose far faster than corporate profits. Of particular concern are artificial intelligence companies, which have drawn comparisons to the 2000 dot-com bubble, which eventually burst. To make a stock look less expensive, either its price must fall or its earnings must rise.
Levi Strauss shares fell 11.4%, one of the market's biggest losers, even though the company reported higher profit for the latest quarter than analysts had expected.
Its full-year profit forecast was also within Wall Street's estimates, but the jeans and apparel company may simply be facing the challenge of elevated expectations. Its share price on that day skyrocketed, up nearly 42 percent in a year.
Oil markets reacted strongly
One of the biggest moves on Friday was the oil market, where the price of a barrel of benchmark US crude fell 4.1 percent to US$58.99.
It fell as a ceasefire between Israel and Hamas took effect in the Gaza Strip, raising hopes of a reduction in violence in the Middle East. Ending the war could eliminate concerns about oil supply disruptions that have kept oil prices higher than they otherwise would have been.
Brent crude, the international standard, fell 3.9 percent to $62.66 a barrel. In the bond market, the yield on the 10-year Treasury note fell to 4.07 percent from 4.14 percent late Thursday.
A report from the University of Michigan says US consumer sentiment remains depressed.
“Pocketbook concerns such as high prices and worsening job prospects remain at the forefront of consumers' minds,” said Joan Xu, director of Consumer Research. “Currently, consumers do not expect significant improvements in these factors.”
The labor market has slowed enough that the Federal Reserve cut its key interest rate last month for the first time this year. Fed officials also planned several more rate cuts before the end of next year to give the economy more breathing room.
But Chairman Jerome Powell also said they may have to change course if inflation remains high. That's because lower interest rates could push inflation up further.
In one encouraging sign from the University of Michigan's preliminary survey, consumer expectations for inflation next year fell to 4.6% from 4.7% a month earlier. While the rate is still high, the direction of change could help the Fed by limiting upward pressure on inflation.
On foreign stock markets, indices fell in most of Europe and Asia.
Hong Kong's Hang Seng fell 1.7 percent and Japan's Nikkei 225 fell 1 percent in two of the biggest moves. But South Korea's Kospi jumped 1.7% after trading resumed after the holiday.
