US stocks dropped on Friday, putting the S&P 500 on track for its first monthly drop of the year after President Donald Trump’s surprise threat of tariffs on Mexico fuelled fears increasing trade wars could lead to a recession.
Washington will impose a 5.0 per cent tariff from June 10, which would then rise steadily to 25 per cent until illegal immigration across the southern border was stopped, Trump tweeted late on Thursday.
Mexican President Andres Manuel Lopez Obrador responded by urging his US counterpart to back down.
The Dow Jones Industrial Average fell 315.97 points, or 1.26 per cent, to 24,853.91, the S&P 500 lost 33.82 points, or 1.21 per cent, to 2,755.04 and the Nasdaq Composite dropped 97.59 points, or 1.29 per cent, to 7,470.12.
Wall Street’s main indexes are down more than per cent in May, as investors have become increasingly worried about deteriorating trade talks between the US and China trade war 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 multi-month lows. Benchmark 10-year yields dropped as low as 2.145 per cent, the lowest since September 2017.
The yield curve, as measured in the gap between three-month and 10-year bond yields, remained deeply inverted. An inversion in the yield curve is seen by some as an indicator that a recession is likely in one to two years.
Of the 11 major S&P sectors, only defensive plays utilities and real estate were the two on the plus side while eight were showing drops of more than 1.0 per cent.
US carmakers and manufacturers were among the worst hit. General Motors Co dropped 4.16 per cent and Ford Motor Co 2.67 per cent, pushing the consumer discretionary sector 1.43 per cent lower.
Among other stocks, Gap Inc tumbled 10.75 per cent, 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 6.50 per cent.