(Reuters) – U.S. stocks fell broadly on Friday, hit by fears that President Donald Trump’s shock threat of tariffs on Mexico could prove the trigger that pushes the world’s largest economy into recession.
Traders work on the floor of the New York Stock Exchange (NYSE) shortly after the opening bell in New York, U.S. May 31, 2019. REUTERS/Lucas Jackson
Washington will impose a 5% tariff from June 10, which would then rise steadily to 25% until illegal immigration across the southern border was stopped, Trump tweeted later on Thursday. Mexican President Andres Manuel Lopez Obrador said he would respond with “great prudence”.
“It is a very sticky situation,” said Art Hogan, chief market strategist at National Securities in New York.
“American companies needed to find supply chains outside of China when it looked like the (U.S.-China) trade deal is going to take much longer and one of those countries that was pointed to outside the Pacific was Mexico.”
Wall Street is on course for a fall of more than 6.5% in May, its worst performance this year and the trigger for a flood of money into the bond market that has encouraged expectations of a U.S. recession.
U.S. Treasury yields fell to new multi-month lows, while the yield curve, as measured in the gap between three-month and 10-year bond yields, remained heavily inverted. An inversion in the yield curve is seen by some as an indicator that a recession is likely in one to two years.
The broader financial sector was under pressure, falling 1.29%, while bank stocks fell 1.50%.
Carmakers and manufacturers also bore the brunt of Trump’s Mexico threat. General Motors Co dropped 3.9% and Ford Motor Co 3.2%, pushing the consumer discretionary sector 1.46% lower.
At 9:46 a.m. ET the Dow Jones Industrial Average was down 291.27 points, or 1.16%, at 24,878.61, the S&P 500 was down 33.95 points, or 1.22%, at 2,754.91 and the Nasdaq Composite was down 100.31 points, or 1.33%, at 7,467.41.
Adding to risks was Beijing’s warning on Friday that it would unveil an unprecedented hit-list of “unreliable” foreign firms, as a slate of retaliatory tariffs on imported U.S. goods was set to kick in at midnight.
Tariff-sensitive industrials declined 1.37%, while FAANG stocks – Facebook Inc, Apple Inc, Alphabet Inc, Netflix Inc and Amazon.com Inc – fell between 0.8% and 2.6%.
Data showed U.S. consumer prices increased in April, which could support the Federal Reserve’s contention that recent low inflation readings were transitory and allow the central bank to keep interest rates unchanged for a while.
Among other stocks, Gap Inc tumbled 16%, the most among S&P 500 companies, after the apparel retailer cut its 2019 profit forecast.
Constellation Brands, which has substantial brewery operations in Mexico, slid 8.2%.
Declining issues outnumbered advancers for a 5.31-to-1 ratio on the NYSE and a 5.28-to-1 ratio on the Nasdaq.
The S&P index recorded two new 52-week highs and 49 new lows, while the Nasdaq recorded four new highs and 136 new lows.
Reporting by Shreyashi Sanyal and Medha Singh in Bengaluru; Editing by Anil D’Silva