Stocks suffered their biggest one-day decline of 2019 on Monday as China allowed its currency to fall to a more-than-10-year low versus the dollar after President Donald Trump rattled markets by announcing additional tariffs on Chinese goods late last week.
Stocks ended off of session lows, which had seen the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.52% drop by more than 900 points, but still suffered sharp losses. The Dow ended the day down 767.27 points, or 2.9%, at 25,717.74 , while the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.05% declined 87.31 points, or 3%, to close at 2,844.74. The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +1.71% shed 278.03 points to finish at 7,726.04, a decline of 3.5%, as China-sensitive tech stocks came under pressure.
The rout marked the biggest one-day selloff, in percentage terms, for the Dow since Dec. 24 and the biggest drop for the S&P 500 and Nasdaq since Dec. 4. The drop marked the lowest close for the S&P 500 and Nasdaq since June 6 and the lowest finish for the Dow since June 5. It left the S&P 500 off 6% from its record close set on July 26, while the Nasdaq is off 7.3% from its all-time closing high set the same day and the Dow has pulled back 6% from its July 15 record finish.
The steep selloff came just one trading day after the S&P 500 and Nasdaq had their biggest weekly declines of 2019.
Until last week, market participants had been able to “compartmentalize” the U.S.-China trade war, said Art Hogan, chief market strategist at National, in a phone interview. Investors were aware of the continued trade tensions, but were reassured that negotiations were continuing and that neither side was prepared to escalate, he said.
That changed Thursday, when Trump announced 10% tariffs on an additional $300 billion of imports from China to take effect on Sept. 1, and was compounded when China allowed the yuan to drop.
“The escalation of the U.S.-China trade war puts us in a place where it’s almost impossible to calculate the collateral damage,” Hogan said. That’s likely to continue to cast a cloud over the market unless there are signs of a de-escalation.
Stocks extended early losses after the Institute for Supply Management said its nonmanufacturing, or services, index fell to 53.7% in July from 55.1% in June — marking a slowdown in growth. The reading was the lowest since August 2016. A reading of more than 50 indicates expansion in activity.
China’s yuan traded recently at 7.0975 to the dollar in offshore trade /zigman2/quotes/210561989/realtime/sampled USDCNH +0.1191% , after breaching the 7 level — long referred to by market watchers as a “line in the sand.” The Wall Street Journal , citing data from Refinitiv, said the yuan fell as much as 1.9% to a record offshore low of 7.1087 in Hong Kong on Monday. In mainland trade /zigman2/quotes/210561991/realtime/sampled USDCNY +0.1504% , the yuan traded at more than 7 per dollar for the first time since 2008.
Trump, in a Monday-morning tweet, accused China of currency manipulation and said the Federal Reserve should “listen”:
Meanwhile, expectations for a half-point interest-rate cut by the Fed when policy makers meet in September continued to rise Monday, with traders reflecting almost even odds of a half- or quarter-point trim.