The S&P 500 was 1.2% lower in early trading and back to 15% below its record set two months ago. The Dow Jones Industrial Average was down 430 points, or 1.1%, as of 9:35 a.m. Eastern time, and the Nasdaq composite was 1.5% lower.
Perhaps more worryingly, U.S. Treasury bonds and the value of the U.S. dollar also sank as a retreat continues from U.S. markets. It’s an unusual move because Treasurys and the dollar have historically strengthened during past episodes of nervousness. But this time around, it’s policies directly from Washington that are causing the fear and potentially weakening their reputations as some of the world’s safest investments.
Trump continued his tough talk on trade over the weekend, even as economists and investors continue to say his stiff proposed tariffs could cause a recession unless they’re rolled back.
“The golden rule of negotiating and success: He who has the gold makes the rules,” Trump said in all capitalized letters on his Truth Social Network. He also said that “the businessmen who criticize tariffs are bad at business, but really bad at politics,” also in all caps.
Trump has recently focused more on China, the world’s second-largest economy, which upped its own rhetoric against the world’s largest economy. China on Monday warned other countries against making trade deals with the United States “at the expense of China’s interest” as Japan, South Korea and other countries try to negotiate agreements that would lower U.S. tariffs on their own products. “If this happens, China will never accept it and will resolutely take countermeasures in a reciprocal manner,” China’s Commerce Ministry said in a statement. Also hanging over the market are worries about Trump’s anger at Federal Reserve Chair Jerome Powell. Trump last week criticized Powell again for not cutting interest rates sooner to help give the economy more juice.
The Fed has been resistant to lowering rates too quickly because it does not want to allow inflation to reaccelerate after it has slowed nearly all the way down to its 2% goal from more than 9% three years ago.
A move to fire Powell would likely send another bolt of fear through financial markets. While investors would love to see lower interest rates, because they would give at least a short-term boost to prices for stocks and other investments, the larger worry is that a less independent Fed would be less effective at keeping inflation under control in the long run. It would further weaken, if not kill, the United States’ reputation as the world’s safest place to keep cash.
On Wall Street, several Big Tech stocks helped lead indexes lower ahead of their latest earnings reports coming later this week.
Tesla sank 4.4%, for example. The electric vehicle’s stock came into Monday roughly 50% below its record set in December on criticism that its stock price had gone too high and that its brand has become too entwined with Elon Musk, who’s leading the U.S. government’s efforts to cut spending.
On the winning side of Wall Street were Discover Financial Services and Capital One Financial, which jumped after the U.S. government approved their proposed merger.
Discover rallied 4.6%, and Capital One rose 2.6%.
In the bond market, shorter-term Treasury yields fell as investors keep alive hopes that the Fed may cut its main overnight interest rate later this year in order to support the economy. But longer-term yields rose as doubts continue to rise about the United States’ standing in the global economy.
The yield on the 10-year Treasury rose to 4.38% from 4.34% at the end of last week and from just about 4% earlier this month. That’s a substantial move for the bond market.
The U.S. dollar’s value, meanwhile, fell against the euro, Japanese yen, the Swiss franc and other currencies.
In stock markets abroad, Tokyo’s Nikkei 225 fell 1.3%. Indexes fared better in Seoul, where stocks rose 0.2%, and in Shanghai, which saw a 0.4% gain.
