The main Wall Street indices ended the first day of the new week with a sharp drop in the background of intensifying trade war between the two largest economies in the world.
The blue-chip index Dow Jones Industrial Average wiped out 767.27 points and ended the day at 25,717.74 points, after falling by 961.63 points at its lowest level during the session. The broader S&P 500 lost nearly 3% of its value and finished at 2,844.74 points, while the technology Nasdaq Composite dropped by 3.5% to 7,726.04 points.
The CBOE Volatility Index, which measures the implied volatility of S&P 500 options, was up 39.64% to 24.59 a new 6-months high.
All three indexes recorded their largest percentage decline this year. The S&P 500 is now more than 6% below its record high, which was reached just last month.
Nasdaq Composite dropped for the sixth consecutive session, its longest losing streak since late 2016. The S&P 500 also recorded its sixth consecutive day of decline, while for Dow Jones it was fifth consecutive day into the red. The negative sentiment of investors came amid the trade tensions between the US and China after last week US President Donald Trump threatened to impose new duties on Chinese imports. Moreover, the Federal Reserve did not signal that it would be as aggressive as markets hoped to prevent economic slowdown.
China, which historically controls its currency, the yuan, has allowed it to reach its lowest level against the US dollar for more than ten years. The onshore yuan crossed the 7 CNY per USD limit and was trading at 7.05.
Later, US President Donald Trump accused China of manipulating its currency, saying in a tweet: “China dropped the price of their currency to an almost a historic low. It’s called currency manipulation. Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!”.
According to the US media, China has asked state-owned companies to freeze imports of American agricultural goods.
This comes after Trump announced last week that the US would impose a 10% duty on Chinese imports worth 300 billion USD. The duties will come into force on September 1st. Trump’s announcement came after Chinese and US officials discussed trade issues earlier last week amid efforts by both sides to resume talks.
On Monday, investors turned to traditional safe-haven assets such as bonds and gold amid uncertainty. The yields on 10-year US Treasuries fell to 1.718% and reached their lowest level since November 2016. The yields on 30-year bonds also dropped to 2.264%.
Corporate stocks performance
Apple wiped out 5.2%, as being among the companies that can lose most from the new customs duties.
The SPDR S&P Retail ETF (XRT) ended the session with a decrease of 2.2% as new duties will affect goods such as clothing, electronics, and toys.
Nike’s stocks dropped by 2.7%, while Macy’s and Best Buy’s stocks declined by 3.1% and 3.5%, respectively.
The shares of FedEx fell by 4%. Caterpillar and Boeing’s stock fell by 2.3% and 2.5%, respectively. The shares of semiconductor companies such as Micron Technology, Skyworks Solutions, and Advanced Micro Devices (AMD) has dropped by at least 4.4%.
The top performers on the S&P 500 were Tyson Foods Inc (+5.12%), Linde PLC (+2.54%) and ABIOMED Inc (+1.95%), while on the flipside were Nektar Therapeutics (-7.37%), Wynn Resorts Limited (-7.18%) and Valero Energy Corporation (-6.67%).