The Dow Jones Industrial Average dropped 200 points, giving up a 131-point gain from earlier in the day. The S&P 500 dipped 0.8% as the consumer staples and utilities sectors lagged. The Nasdaq Composite fell 0.4%. The S&P 500 and Nasdaq traded higher earlier in the session. The major indexes slid to their session lows in the last hour of trading.
The yield on the benchmark 10-year note fell to around 2.26%, its lowest level in 19 months. Yields move inversely to prices.
Bank shares fell broadly amid the lower interest rates. Goldman Sachs dropped 1.7% while Citigroup and J.P. Morgan Chase fell 0.6% and 0.8%, respectively. Morgan Stanley and Wells Fargo also slipped.
The drop in bank shares and rates come after President Donald Trump said on Monday the U.S. was “not ready” to make a deal with China, before adding he expected one in the future. Trump also said tariffs on Chinese imports could go up “substantially.”
“Trump is playing a Game of Thrones with both foreign and domestic adversaries,” said Ed Yardeni, president and chief investment strategist at Yardeni Research. “Since he is the President of the world’s greatest economic and military power, he claimed that he will consummate lots of deals with them that will greatly benefit the US in short order. The results have been mostly disappointing so far.”
Trump’s comments come after a commentary piece in Chinese state-run newspaper Xinhua hinted China would not bend to U.S. demands to change its state-run economy. The U.S. has raised concern over state-run companies and the forced surrender of intellectual property.
Chipmakers, a barometer for U.S.-China trade relations, largely fell. The VanEck Vectors Semiconductor ETF fell 0.7%, led by a 3% decline in Micron Technology. Intel and Qorvo also fell 2.4% and 2.3%, respectively. Caterpillar, another bellwether for trade, slipped nearly 1%.
“These things usually don’t end well,” said Michael Katz, partner at Seven Points Capital. “Concerns are building and, if you’re a fund manager, you’re probably thinking of ways to hedge yourself and take some risk off the table.”
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“You look at it and say, Here’s another card they can play,” said Art Hogan, chief market strategist at National Securities. “It’s all he said, Xi said right now. And we’re going to have to hear it form the top … It’s hard to glean anything new because we didn’t learn anything over the weekend.”
Trade tensions between the two countries escalated earlier this month as both countries hiked tariffs on billions of dollars worth of each other’s goods. The increasing tensions have pushed the S&P 500 down more than 4% in May through Friday’s close.
“We still believe that a trade deal will be reached, although it may take many months,” said Bruce Bittles, chief investment strategist at Baird, in a note. “Both sides have too much at stake not to reach some form of an agreement as a trade war could throw China into a deep recession and the president needs a strong economy to keep enough support to win the 2020 election. For now, investors are cautiously optimistic but we are certain that volatility in the markets will continue.”
In corporate news, Fiat Chrysler shares rose more than 7% on an announcement it is seeking a merger with French automaker Renault. Meanwhile, Total Systems Services rose more than 4% after agreeing to merge with Global Payments.
—CNBC’s Sam Meredith and Patti Domm contributed to this report.