US stocks dropped on Friday as the S&P 500 closed out the month with its biggest May slump since 2010, after US President Donald Trump’s surprise threat of tariffs on Mexico fueled fears that a trade dispute on multiple fronts could lead to a recession.
Washington is to impose a 5 percent tariff from Monday next week, which would rise steadily to 25 percent until illegal immigration across the US’ southern border is stopped, Trump said on Twitter late on Thursday.
Mexican President Andres Manuel Lopez Obrador responded by urging his US 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,” Smart said.
The Dow Jones Industrial Average on Friday fell 354.84 points, or 1.41 percent, to 24,815.04, the S&P 500 lost 36.8 points, or 1.32 percent, to 2,752.06 and the NASDAQ Composite dropped 114.57 points, or 1.51 percent, to 7,453.15.
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 percent, the S&P 500 dropped 2.62 percent and the NASDAQ declined 2.41 percent.
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 percent, the S&P 500 dropped 6.58 percent and the NASDAQ declined 7.93 percent to mark the first monthly decline of the year for each index.
Investors have grown more worried about deteriorating trade talks between the US 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.
US Treasury yields fell to new multimonth 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 percent.
US automakers and manufacturers were also pulled lower.
General Motors Co dropped 4.25 percent and Ford Motor Co 2.26 percent, pushing the consumer discretionary sector down 1.44 percent.
Adding to the downbeat mood, Beijing on Friday said that it would unveil an unprecedented hit list of “unreliable” foreign firms, as a slate of retaliatory tariffs on imported US goods was set to kick in at midnight. Tariff-sensitive industrials declined 1.46 percent.
Data showed that US 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 tumbled 9.32 percent as the worst performer on the S&P 500 after the apparel retailer cut its profit forecast for this year.
Constellation Brands Inc, which has substantial brewery operations in Mexico, slid 5.79 percent.
Declining issues outnumbered advancers on the New York Stock Exchange by a 2.52-to-1 ratio; on NASDAQ, a 3.20-to-1 ratio favored decliners.
About 7.92 billion shares changed hands in US exchanges, compared with the 7.01 billion daily average over the past 20 sessions.
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