The Dow Jones Industrial Average plunged more than 500 points Monday as investors sought shelter from an escalating trade war between the U.S. and China.
The Dow and S&P 500 index each fell more than 2% as investors sold trade-sensitive shares in a broad sell-off that extended the market's slide into a second week.
Technology stocks led the way lower, with digital storage companies and chipmakers among the big decliners. Heavy equipment makers Deere and Caterpillar drove losses in the industrial sector.
The world's largest economies had seemed on track to resolve the ongoing trade dispute that has raised prices for consumers and pinched corporate profit margins. Investor confidence that the two sides were close to a resolution had helped push the market to its best yearly start in decades.
Those hopes are now being dashed and replaced by concerns that the trade war could crimp what is otherwise a mostly healthy economy. Analysts have warned that failed trade talks and the deterioration in relations will put a dent in the U.S. and China's economic prospects.
"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 544 points, or 2.1%, to 25,398 as of 3:08 p.m. Eastern Time. Earlier, it was down 719 points. Boeing and Caterpillar fell the most in the Dow. Both companies get a significant amount of revenue from China and stand to lose heavily if the trade war drags on. Boeing slid 4.2% and Caterpillar was 4.4% lower.
The broader S&P 500 index fell 2.1%. The benchmark 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 2.9%, on track for its biggest daily loss of the year.
Technology stocks were bearing the heaviest losses. Apple fell 5% and Cisco slid 3.4%. Chipmakers and other technology companies have warned that uncertainty over the trade war's outcome is prompting a slowdown in orders.
Bank stocks also fell sharply. Bank of America dropped 3.8% and JPMorgan Chase fell 2.1%.
Safe-play holdings were the only winners as traders sought to reduce their exposure to risk. Utilities were the only sector to rise on the stock market, and 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.
Overseas markets also fell. European indexes mostly finished more than 1% lower. In Asia, the Shanghai Composite index fell 1.2%. Japan's Nikkei 225 index gave up 0.7% and South Korea's Kospi fell 1.4%.
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 27%. 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.
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 $8.03 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.
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 12.5% of the year with technology stocks blowing away rest of the market with 18.8% gains.
Investors have so far made it through the bulk of first quarter corporate earnings reports in decent shape. Earlier in the year they had expected earnings to severely contract. The results so far show less than a 1% drop in profit.
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 are sinking after many of them were accused of artificially inflating and manipulating prices. The 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 15.1%. Mylan slumped 9.8%.
Ride-sharing company Uber tumbled another 11% 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 but is now trading just below $37.
Gold mining companies were some of the few stocks making gains amid the broad market slump as the price of gold, another safe-play asset, rose 1% to $1,301 an ounce. Newmont Goldcorp rose 2.8%.