The Dow Jones Industrial Average traded 300 points lower after rallying as much as 311 points earlier in the day. The S&P 500 was down 1.1%. The Nasdaq Composite traded down 1.1% after jumping more than 1.6%.
“Trade has always been an issue hanging over the market and whether or not we see an escalation, said Quincy Krosby, chief market strategist at Prudential Financial. “The fact is we’ll surely get a reaction from Beijing.”
“There were concerns that after the [Federal Reserve] meeting and as earnings season began to wind down, the market would be more susceptible to volatility,” Krosby said.
Trump said in a series of tweets the tariff will be imposed on $300 billion worth of Chinese goods. The levy will take effect Sept. 1.
Trump’s tweets came after a U.S. delegation met with Chinese trade officials earlier this week. Those were the first in-person trade talks between China and the U.S. since both countries reached a truce on the situation.
Shares of Caterpillar and Deere, two bellwethers of global trade, dropped to trade more than 2% lower. Boeing traded 0.9% lower. FedEx shares also fell 4%.
Apple, which has managed to avoid large hits from U.S.-China trade tariffs, fell 2.7%. The tech giant told U.S. Trade Representative Robert Lighthizer on June 17 that tariffs on the remaining $300 billion in Chinese imports would cover “all of Apple’s major products.”
Retail stocks like Nike dropped 3.1%. Yeti Holdings dropped 10.8% while PVH slid 7.5%. The SPDR S&P Retail ETF (XRT) plummeted by 3.3%.
Treasury yields fell sharply on the news. The benchmark 10-year yield slid to 1.89%, hitting its lowest level since November 2016. The 2-year rate dell to trade at 1.726%.
Gold prices spiked as investors looked for safety, trading 0.3% higher and erasing earlier losses. The Cboe Volatility Index (VIX), considered the best fear gauge in the market, traded 15.3% higher at 18.66 and hit its highest level since early June.
“People are trading very nervously,” said Ilya Feygin, senior strategist at WallachBeth Capital. “They are overreacting to every little piece of news.”
“Things are going to keep swinging back and forth instead of this slow upward grind we’ve seen recently. There’s going to be a lot of headlines,” Feygin said.
Stocks had rallied earlier in the day, as investors were betting the Federal Reserve would cut interest rates again in September.
Brendan McDermid | Reuters
But Chairman Jerome Powell told reporters in a news conference following the Federal Open Market Committee’s rate decision that the central bank’s rate cut was a “midcycle adjustment,” hinting that further rate cuts later this year were not a sure thing.
That comment led to a 333-point drop on the Dow, its biggest one-day drop since May 31. The S&P 500 and Nasdaq dropped 1.1% and 1.2%, respectively, to end July.
“Yesterday was the perfect example of expectations being misaligned with reality,” said Art Hogan, chief market strategist at National Securities. “The Fed did exactly what it should have done. An insurance cut is exactly that.”
“The Fed delivered a message saying the market may have been ahead of itself pricing in so many rate cuts,” he said.
Thursday marked the first trading day of August, a month that has not been kind to Wall Street. Since 1950, August has been the second-worst month for the S&P 500, according to the Stock Traders’ Almanac. Over that time, the S&P 500 has averaged a loss of 0.1% in August.