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story.lead_photo.caption Specialist Paul Cosentino works on the floor of the New York Stock Exchange, Monday, Aug. 5, 2019. U.S. stocks nosedived in early trading on Wall Street Monday as China's currency fell sharply and stoked fears that the trade war between the world's two largest economies would continue escalating. (AP Photo/Richard Drew)

NEW YORK — U.S. stocks plunged to their worst loss of the year Monday and investors around the world scrambled to sell on worries about how much President Donald Trump's worsening trade war will damage the global economy.

China let its currency, the yuan, drop to its lowest level against the dollar in more than a decade, a move that Trump railed against as "currency manipulation." It also halted purchases of U.S. farm products. The moves follow Trump's tweets from last week that threatened tariffs on about $300 billion of Chinese goods, which would extend tariffs across almost all Chinese imports.

The escalating dispute between the world's largest economies is rattling investors unnerved about a global economy that was already slowing and falling U.S. corporate profits.

The S&P 500 dropped 87.31 points, or 3%, to 2,844.74 for its worst loss since December, when the market was wrapped in the throes of recession fears. It was down as much as 3.7% in the afternoon.

The Dow Jones Industrial Average lost 767.27, or 2.9%, to 25,717.74, and the Nasdaq composite fell 278.03, or 3.5%, to 7,726.04.

"A 3% drop in a day is very significant, and you're seeing sizeable moves in every major foreign market," said Rich Weiss, chief investment officer of multi-asset strategies at American Century Investments.

"I am surprised at the market's surprise at China's retaliation," he said. "We started a fight, and when the opponent punches back, I'm not sure why we're surprised."

The sell-off began Monday in Asia, where indexes lost more than 1%, and intensified as it swept westward through Europe to the Americas. Investors in search of safety herded into U.S. government bonds, which sent yields plunging.

The yield on the 10-year Treasury note, which rises with expectations of stronger economic growth and inflation, fell to its lowest level since Trump's 2016 election energized markets, down to 1.72% from 1.85% late Friday. The yield on the two-year note, which is more influenced by interest-rate moves from the Federal Reserve, sank to 1.58% from 1.71%. Both are unusually large moves.

A warning light of recession in the bond market also began shining more brightly, which traders said may have added to the selling pressure on stocks. When short-term Treasury yields are higher than long-term rates, a rule of thumb says a recession may arrive in about a year. The three-month yield was at 2.00% Monday afternoon, 0.28 percentage points higher than the 10-year's yield. A month ago, it was 0.21 points higher.

"The market sell-off is showing that there is a severe lack of confidence that this is going to work out for us economically, at least in the short term," Weiss said.

Of course, the U.S. economy is still growing, the unemployment rate remains close to its healthiest level in nearly half a century and U.S. stock indexes set record highs just over a week ago. But the escalating trade tensions and investors' disappointment that the Federal Reserve didn't commit to a lengthy series of interest-rate cuts at its meeting last week have since sent the S&P 500 on a six-day losing streak, its longest since October. The S&P 500 is 6% below its record.

"A recession is still unlikely, but the probability of it is higher, still at less than 20%," said Nate Thooft, head of global asset allocation at Manulife Investment Management.

The biggest threat coming out of the past week, he said, is that all the uncertainty about trade will scare CEOs and shoppers away from spending. That would threaten the expected ramp up in growth that economists have been expecting later this year. He expects U.S. economic growth to muddle along. It may fall as low as 1% and make things feel like a recession, he said, but a real recession remains unlikely in part because interest rates are low.

Technology stocks bore the brunt of Monday's selling, and Apple slid 5.2%. It not only depends on Chinese factories to assemble its iPhones, but China is also the only country aside from the United States that accounts for more than 10% of its sales.

Companies are in the final stretch of the latest round of quarterly earnings reports, and results haven't been as bad as initially feared, though still down from year-ago levels. Profit for companies in the S&P 500 is now expected to contract by roughly 1%. That's better than the nearly 3% drop expected earlier. More than three quarters of the S&P 500 have reported financial results.

Meat producer Tyson Foods jumped 5.1% for the biggest gain in the S&P 500 after it reported profits that were better than Wall Street expected. It was one of only 11 stocks in the S&P 500 able to eke out a gain.

Gold rose as investors sought safer ground. It added $19.00 to $1,464.60 per ounce. Silver rose 13 cents to $16.35 per ounce, and copper fell 3 cents to $2.54 per pound.

Benchmark U.S. crude fell 97 cents to settle at $54.69 a barrel. Brent crude oil, the international standard, fell $2.08 to $59.81 a barrel. Wholesale gasoline fell 6 cents to $1.72 per gallon. Heating oil declined 5 cents to $1.84 per gallon. Natural gas fell 5 cents to $2.07 per 1,000 cubic feet.

In Asia, where tensions between Seoul and Tokyo are worsening in a trade dispute entirely separate from Washington's and Beijing's, Japan's Nikkei 225 index fell 1.7%, and South Korea's Kospi lost 2.6%. The Hang Seng in Hong Kong dropped 2.9%.

In Europe, France's CAC 40 fell 2.2%, and the German DAX lost 1.8%. The FTSE 100 in London dropped 2.5%.

The dollar fell to 106.02 Japanese yen from 106.55 yen on Friday. The euro strengthened to $1.1202 from $1.1113.


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Archived Comments

  • 0boxerssuddenlinknet
    August 5, 2019 at 1:55 p.m.

    Thank the good Lord we finally have a President strong enough to stand up to the Chinese and draw attention to the security risk that is China. china needs us far more than we need them. their economy has slowed with Chinese manufacturers taking the hit on the new taxes. Xi is not very popular with his middle class right now and He is just trying to wait the US out hoping that American voters do not pay attention to world strategies and security risks. We already know that joe biden is already in their pockets along with Google and will do anything to see a weak democrat elected to office. I pray the chinese do not get their way. hang tough Mr president the American people are with you .

  • 3WorldState1
    August 5, 2019 at 2:17 p.m.

    No they aren’t. Just the brainwashed and racist. The brainwashed will/can come around. Racist...not a lot of hope for them.
    Trump said multiple times things were good and a trade deal was imminent. Why did he say that? Oh yes, because he’s a liar.

  • RecumbentDNA
    August 5, 2019 at 4:03 p.m.

    So Much Winning !

  • itryed
    August 5, 2019 at 4:59 p.m.

    Oboxer drinking the KoolAid

  • Morebeer
    August 5, 2019 at 5:39 p.m.

    I knew Trump would eventually ruin the thriving economy Obama handed him. Looks like he’s finally figured out how.

    August 5, 2019 at 5:46 p.m.

    Amen, morebeer. All Trump had to do was NOT screw up the Obama Recovery from the last Republican Recession.

    But he’s too inept to leave well enough alone.

  • LRDawg
    August 5, 2019 at 6:03 p.m.

    Morebeer and Armnar for the win! Oboxer thinks the worst loss of the year is a good thing LMAO Republicans wonder why Democrats refer to them as dumb....see Oboxer's comment

  • Foghorn
    August 5, 2019 at 7:14 p.m.

    The article fails to mention China suspended all imports of US agri products as well as weaponizing their currency. We were headed for recession before this happened and this will only accelerate it. I’m surprised at the few comments here; no one, even if your money is in your mattress, won’t feel the effects of China’s retaliation. The economy at the time of the 2020 elections will look very differently than it does today.

  • Skeptic1
    August 5, 2019 at 7:32 p.m.

    Hang tough President Trump, future generations will thank you for it. For decades beginning with Clinton, China has stolen our technology then sold it back to us with a one-sided trade deal. Trump doesn't care what Wall Street Robber Baron's think that have profited from this insane one-sided trade deal. The Democrat Socialists don't under economics so who cares what they think, but even our farmers know that a little pain now will reap great rewards later. China is betting on political pain in the US to force Trump to back off, they should know by now that won't work. Crashing their currency is going to hurt everyone but the US and China will be the first soon see the wrath of their other trading partners getting hurt in the crossfire.

  • Skeptic1
    August 5, 2019 at 7:33 p.m.

    3WorldState1....racist, racist, racist, is that truly all that you can muster?