(Reuters) – U.S. stocks fell on Friday after President Donald Trump’s shock threat of tariffs on Mexico fueled fears that escalating trade wars could push the world’s largest economy into recession.
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 late on Thursday.
Mexican President Andres Manuel Lopez Obrador on Friday urged his U.S. counterpart to back down.
“This comes at a time when companies have to be looking at alternatives to the Chinese supply chain. Many thought Mexico would be an alternative, but now that looks in jeopardy,” said Cliff Hodge, director of investments at Cornerstone Wealth.
“The risk is that these tariffs, along with those imposed on China, push an already soft business cycle into a full-blown recession.”
Wall Street’s main indexes are down more than 6 in May, their worst performance this year, as investors fret over a protracted U.S.-China trade war and seek safety in government bonds.
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 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.
The broader financial sector was under pressure, falling 1%, while bank stocks slipped 0.95%.
U.S. carmakers and manufacturers were among the worst hit. General Motors Co dropped 4.7% and Ford Motor Co 2.9%, pushing the consumer discretionary sector 1.26% lower.
At 12:38 p.m. ET the Dow Jones Industrial Average was down 267.64 points, or 1.06%, at 24,902.24, the S&P 500 was down 29.09 points, or 1.04%, at 2,759.77 and the Nasdaq Composite was down 88.42 points, or 1.17%, at 7,479.30.
Adding to the downbeat mood 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 1.25%, while FAANG stocks – Facebook Inc, Apple Inc, Alphabet Inc, Netflix Inc and Amazon.com Inc – fell between 1% and 2.6%.
Among the 11 major sectors, only the defensive real estate index was up 0.70%.
Data showed U.S. consumer prices increased by the most in 15 months in April, but a cooling in spending pointed to a slowdown in economic growth that could keep inflation pressures moderate.
The report from the Commerce Department supported the Federal Reserve’s contention that recent low inflation readings were transitory.
Among other stocks, Gap Inc tumbled 10.2%, 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%.
Declining issues outnumbered advancers for a 2.53-to-1 ratio on the NYSE and for a 3.06-to-1 ratio on the Nasdaq.
The S&P index recorded three new 52-week highs and 52 new lows, while the Nasdaq recorded 12 new highs and 191 new lows.
Reporting by Shreyashi Sanyal and Medha Singh in Bengaluru; Editing by Anil D’Silva