U.S. stocks had their biggest loss of the year Monday, and investors around the world scrambled to sell, on worries about how much President Trump’s escalating 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 and called “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 worth of Chinese goods, which would extend tariffs across almost all imports from China.

The escalating U.S.-China trade war is rattling investors who already were unnerved by a slowing global economy and falling U.S. corporate profits.

The S&P 500 dropped 87.31 points, or 3%, to 2,844.74 on Monday. That was its biggest one-day loss loss since December, when the market was in the throes of recession fears. Earlier in the day it was down as much as 3.7%.


The Dow Jones industrial average slid 767.27 points, or 2.9%, to 25,717.74. The Nasdaq composite sank 278.03 points, or 3.5%, to 7,726.04.

“A 3% drop in a day is very significant, and you’re seeing sizable 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 down sharply.


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. It fell to 1.72% from Friday’s 1.85%. 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% on 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 sent the S&P 500 on a six-day losing streak, its longest since October. The S&P 500 is 6% below its record high.


“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 last week, he said, is that all the uncertainty about trade will scare businesses and shoppers away from spending. That would threaten the ramp-up in economic 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. Apple slid 5.2%. The company depends on Chinese factories to assemble its iPhones, and China is also the only country aside from the United States that accounts for more than 10% of Apple’s sales.

Video game company stocks lost ground after Trump and other politicians linked violent games to mass shootings.


Companies are in the final stretch of the quarterly earnings report season, and results haven’t been as bad as initially feared, though they’re still down from year-earlier levels. Profit for companies in the S&P 500 is now expected to have shrunk 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 so far.

Meat producer Tyson Foods jumped 5.1%, the biggest gain in the S&P 500, after it reported profit that beat analyst expectations. It was one of only 11 stocks in the S&P 500 that eked out a gain.

Gold rose as investors sought safer ground, advancing $19 to $1,464.60 an ounce. Silver rose 13 cents to $16.35 an ounce. Copper fell 3 cents to $2.54 a 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 South Korea and Japan are worsening in a trade dispute that is separate from the U.S.-China trade war — 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%, the German DAX lost 1.8%, and the FTSE 100 in London dropped 2.5%.