The Dow Jones Industrial Average plunged more than 600 points Monday as investors sought shelter from an escalating trade war between the U.S. and China.
The selling was widespread and heavy, handing the benchmark S&P 500 index its biggest loss since January. The sell-off extended the market's slide into a second week. The losses so far in May have now erased the market's gains from April.
Technology companies, which do a lot of business with China, led the way lower. Chipmakers were among the biggest decliners. Apple also took heavy losses, tumbling 5.8%. Farming equipment maker Deere drove losses in the industrial sector.
The world's two largest economies had seemed to be on track to resolve the ongoing trade dispute that has raised prices for consumers and pinched corporate profit margins. Hopes for a resolution had helped push the market to its best yearly start in decades.
Those hopes are now replaced by concerns that a full-blown trade war could crimp what is otherwise a mostly healthy economy.
"The larger issue with the tariffs isn't the specific amounts of tariffs at any given time, but the uncertainty that's surrounding these tariffs and the 'what's-next?' of an escalating trade war," said Willie Delwiche, investment strategist at Baird. "That weighs on the global economy and could then weigh on the U.S. economy."
The Dow dove 617.38 points, or 2.4%, to 25,324.99. Earlier, it was down 719 points. Apple and Boeing were the Dow's biggest decliners. Both companies get a significant amount of revenue from China and stand to lose heavily if the trade war drags on. Boeing slid 4.9%.
The broader S&P 500 index fell 69.53 points, or 2.4%, to 2,811.87. The index is coming off its worst week since January, though it's still up sharply for the year. The Nasdaq, which is heavily weighted with technology stocks, slid 269.92 points, or 3.4%, to 7,647.02, its worst drop of the year.
The Russell 2000 index of small company stocks lost 49.99 points, or 3.2%, to 1,523.
Trade talks between the U.S. and China concluded Friday with no agreement and with the U.S. increasing import tariffs on $200 billion of Chinese goods to 25% from 10%. Officials also said they were preparing to expand tariffs to cover another $300 billion of goods.
China on Monday announced tariff increases on $60 billion of U.S. imports, particularly farm products like soybeans. The price of soybeans slid 0.8% to $8.04 a bushel. They were trading around $9 a bushel last month and are now at their lowest price since December 2008. The falling price has put pressure on U.S. farmers.
Analysts have said investors should prepare for a more volatile stock market while the trade dispute deepens. Many are still confident that both sides will eventually reach a deal.
"Since we see a trade accord being reached in the not-too-distant future, we don't expect the market to endure more than a short-lived spate of indigestion," said Sam Stovall, chief investment strategist at CFRA.
Technology stocks took the heaviest losses Monday. Chipmakers Microchip Technology dropped 6.3% and Advanced Micro Devices lost 6.2%.
Some of the biggest chipmakers in the U.S. lean heavily on China for their sales, making them particularly vulnerable to the worsening tensions between the two countries. With China now retaliating against the Trump administration's tariffs, it has become more likely the chip sector will be caught in the crossfire and take a hit to their profits.
The list of chipmakers that get at least one-quarter of their revenue from China include: Qualcomm (65, Micron (57%), Texas Instruments (43%), Microchip Technology (29%), Intel (26%) and Xilinx (25%), according to FactSet Research.
Bank stocks also fell sharply. Bank of America dropped 4.5% and JPMorgan Chase fell 2.7%.
Safe-play holdings were the only winners as traders sought to reduce their exposure to risk. Utilities were the only sector to notch a gain. Prices for U.S. government bonds, which are considered ultra-safe investments, rose sharply, sending yields lower. The yield on the 10-year Treasury fell to 2.40% from 2.45% late Friday.
In another sign of how nervous investors were feeling, an index known as Wall Street's "fear gauge," which measures how much volatility the market expects in the future, spiked 28.1%. The VIX, however, is still far below the elevated levels it reached at the end of last year when the S&P 500 came extremely close to entering a bear market, meaning a decline of 20% or more from a recent peak.
The deteriorating trade negotiations follow what has been a mostly calm period of trading where solid economic data and corporate earnings helped push the market steadily higher. The S&P 500 is still up 12.2% of the year with technology stocks still boasting an 18% gain.
First quarter corporate earnings reports have been better than expected. Instead of a sharp contraction, profits for the S&P 500 are down less than 1%. However, the fallout from the trade war could spoil an expected earnings recovery in the second half.
The escalating trade war threatens to spoil an expected earnings recovery in the second half, however.
"Investors are increasingly worried an anticipated second-half profit rebound may now evaporate as President (Donald) Trump's threat to tariff the remaining $325 billion in Chinese imports would disproportionately target consumer products like iPhones, thereby posing a greater threat to the consumption-driven US economy," said Alec Young, managing director of global markets research at FTSE Russell.
Elsewhere in the market, generic drug developers slumped after many of them were accused of artificially inflating and manipulating prices. A lawsuit from attorneys general in more than 40 states alleges that for many years the makers of generic drugs worked together to fix prices.
Teva, which was specifically mentioned, sank 14.8%. Mylan skidded 9.4%
Ride-sharing company Uber tumbled another 10.8% on its first full day of trading following its rocky debut on the stock market Friday. The stock had priced at $45 at its initial public offering. It closed at $37.10.
Gold mining companies rose as the price of gold, another safe-play asset, rose 1.1% to $1,301.80 an ounce. Newmont Goldcorp rose 2.5%.
Energy futures finished mostly lower. U.S. crude dropped 1% to settle at $61.04 per barrel. Brent crude, the international standard, closed 0.6% lower at $70.23 per barrel.
Wholesale gasoline slid 1.3% to $1.96 per gallon. Heating oil lost 0.6% to $2.04 per gallon. Natural gas inched 0.1% higher to $2.62 per 1,000 cubic feet.
Silver slipped 0.1% to $14.78 per ounce and copper rose 2% to $2.72 per pound.
The dollar fell to 109.34 Japanese yen from 109.90 yen on Friday. The euro held steady at $1.1231.