Stocks reversed course and fell sharply on Friday as fears of a trade war with China escalated.
Also weighing on prices was the jobs report for March, showing that just 103,000 jobs were added.
The Dow fell more than 570 points, or 2.3 percent, with companies most exposed to a U.S.-China trade war taking the biggest hit. The S&P 500 index and the tech-heavy Nasdaq also slumped more than 2 percent.
“The financial markets are trying to figure out how much of this is real and how much is not real,” Torsten Sløk, chief international economist Deutsche Bank Securities, told CBS MoneyWatch, referring to the possibility of a trade war. “The problem is that the sheer discussion whether this is real or not on its own is having an impact.”
The Dow, which contains numerous multinational companies including industrial powerhouses Boeing and Caterpillar, has swung dramatically this week, with about 1,300 points separating its highest and lowest marks. It fell as much as 758 points Monday, then recovered all of those losses, and late Thursday it was up as much as 519 points for the week.
The Dow’s losses grew steeper on Friday afternoon after Treasury Secretary Steve Mnuchin, appearing on CNBC, said “there is the potential of a trade war.” He added he is “cautiously optimistic that we’ll be able to work this out.”
Caterpillar shed or 3.5 percent, and Deere sank almost 4 percent. Boeing lost 3 percent.
Industrial companies might face the worst pain from a trade war. They face higher costs for imported components, and higher tariffs will hurt their sales in China.
In the short-term, the dueling tariffs are unlikely to inflict serious economic harm. U.S. gross domestic product could fall by a total of 0.3 percent this year and next if all the proposed American duties on China are imposed and Beijing fires back, projects Gregory Daco of Oxford Economics. Chinese economic growth could see a similar dip.
But a broader trade war would result in a “significant” slowdown in both countries, he said in a note to clients.
The Trump administration spent the past few days reassuring investors that it’s not rushing into a trade war, and China’s government has done the same. But late Thursday, President Trump ordered the U.S. Trade Representative to consider placing tariffs on $100 billion in duties on Chinese imports.
China said it would “counterattack with great strength.” President Trump criticized the World Trade Organization on Twitter Friday morning, saying it had been unfair to the U.S.
At the start of the week, the U.S. announced plans to put tariffs on $50 billion in goods imported from China, and the Chinese government responded with measures of equal size. Stocks plunged on Monday, but they rallied over the next few days as officials from both countries said they were open to talks and that the tariffs might never go into effect.
With administration officials sounding conciliatory one day and more hostile the next and the president always quick to fire off another tweet, investors simply don’t know what the U.S. wants to achieve, said Katie Nixon, chief investment officer for Northern Trust Wealth Management.
“The process itself seems to be quite chaotic,” she said. “We’re not quite sure what the long-term strategy is.”
