Wall Street slides as US-China trade fears rise; Dow down 1.8%

VIDEO: REUTERS

NEW YORK (REUTERS) - US stocks slid on Tuesday (May 7) as escalating trade tensions between the United States and China triggered global growth fears and drove investors away from riskier assets.

The Dow Jones Industrial Average fell 1.79 per cent to post its second-biggest daily percentage drop of the year, while the S&P 500 and Nasdaq registered their third-biggest percentage drops, even as the major indexes pared losses to end off their session lows.

US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin said late on Monday that China had backtracked from commitments made during trade negotiations.

Those comments followed President Donald Trump's unexpected statement on Sunday that he would raise tariffs on US$200 billion (S$272 billion) worth of Chinese goods to 25 per cent from 10 per cent.

Beijing said on Tuesday that Chinese Vice-Premier Liu He will visit the United States on Thursday and Friday for trade talks. Additional tariffs are set to take effect on Friday if a trade agreement is not reached by then.

Monday's comments from Lighthizer and Mnuchin raised concerns among some investors that trade talks between China and the United States could take much longer to resolve than previously thought.

"Week after week, we've heard there has been progress and that a deal would be reached," said Kate Warne, investment strategist at Edward Jones in St. Louis.

"Now the goalposts have moved. There's been quite a shift in expectations."

Investors expressed concern that additional tariffs, if imposed, could interrupt supply chains and hamper economic growth.

 
 
 

"The threat of tariffs has not been trotted out since the end of December," said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh.

"It could disrupt the symbiosis between (China and the United States)."

Trade-sensitive industrial and technology stocks marked the biggest percentage declines among the S&P 500's major sectors. All 11 sectors were in the red, with only utilities and energy falling less than 1 per cent.

Shares of Boeing, the largest US exporter to China, slipped 3.9 per cent, and shares of Caterpillar, another industrial stalwart sensitive to China, declined 2.3 per cent.

Among technology stocks, Microsoft shares slid 2.1 per cent, while Apple shares dropped 2.7 per cent. Apple and Microsoft were the top two drags on the S&P 500.

The CBOE Volatility Index, a gauge of investor anxiety, spiked to its highest level in more than three months.

The Dow Jones Industrial Average fell 473.39 points, or 1.79 per cent, to 25,965.09, the S&P 500 lost 48.42 points, or 1.65 per cent, to 2,884.05 and the Nasdaq Composite dropped 159.53 points, or 1.96 per cent, to 7,963.76.

In a bright spot, American International Group shares jumped 6.8 per cent after the insurer reported a quarterly profit that blew past expectations.

With earnings season now in its homestretch, first-quarter profits are now expected to rise 1.2 per cent, a sharp improvement from the 2.3 per cent decline expected at the start of the earnings season.

Of the 414 S&P companies that have reported earnings so far, about 75 per cent have surpassed analysts' estimates, according to Refinitiv data.