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U.S. stocks sank Monday amid a drop in big tech stocks and the latest developments in U.S.-China trade tensions.
The S&P 500 (^GSPC) fell 0.28%, or 7.82 points, as of market close. The Dow (^DJI) was little changed for the day.
The Nasdaq (^IXIC) dropped 1.61%, or 120.13 points, as shares of Google-parent Alphabet (GOOG, GOOGL) dropped 6% amid reports of a potential Justice Department antitrust probe. This came after the Washington Post reported Saturday that Amazon (AMZN) had been placed under the watch of the Federal Trade Commission.
Monday afternoon, the Wall Street Journal also reported that the FTC had secured the right to investigate Facebook (FB) over potential antitrust concerns, and Reuters reported that the Justice Department received jurisdiction to probe Apple’s (AAPL) practices.
Equities endured a choppy session for their first trading day in June after posting sharp declines last month. In May, U.S. stocks posted their first monthly decline since December, with each of the three major indices falling at least 6.5% for the month. Friday’s stock market declines came after President Donald Trump unexpectedly announced that he would be slapping tariffs of up to 25% on all imports from Mexico.
Over the weekend, China’s State Council Information Office published a white paper that firmed its stance on the trade situation, stating the U.S. government “should bear the sole and entire responsibility for this severe setback to the U.S.-China economic and trade consultations.”
The white paper lays out an argument claiming that the U.S. backtracked on agreements between the two countries by carrying out actions including the recent increase in the rate of tariffs on $200 billion worth of Chinese-made goods. Over the past several weeks, many U.S. media outlets reported that the Trump administration’s increase to tariffs was due in large part to the Chinese delegation’s reneging on commitments in the negotiations.
“The U.S. government accusation of Chinese backtracking is totally groundless. It is common practice for both sides to make new proposals for adjustments to the text and language in ongoing consultations,” the white paper read. “In the previous more than 10 rounds of negotiations, the U.S. administration kept changing its demands. It is reckless to accuse China of ‘backtracking’ while the talks are still under way.”
Ongoing trade tensions have roiled both financial markets and global economies, recent data have signaled. Factory activity in the eurozone and parts of Asia dropped in May, signaling growth deterioration against a backdrop of global trade uncertainty.
“Trade wars, slumping demand in the auto sector, Brexit and wider geopolitical uncertainty all remained commonly cited risks to the outlook, and all have the potential to derail any stabilization of the manufacturing sector,” Chris Williamson, chief business economist at IHS Markit, said in a statement.
IHS Markit reported that in May, the eurozone’s purchasing managers’ index contracted to 47.7, from 47.9 in April, indicating further contraction in the bloc’s manufacturing sector.
China’s key manufacturing sector reflected a reading of 50.2 in May, unchanged from the month prior and holding just above the neutral level of 50, indicating slight expansion.
With U.S.-China trade tensions showing no signs of abating, market pundits have begun to sound the alarms for further financial market and economic deterioration.
“It would be remiss to underestimate this impact when the risks of tensions persisting for longer have increased ... if trade tensions continue to escalate, with the U.S. imposing 25% tariffs on the remaining ~US$300 billion of imports from China and China responding with countermeasures, we believe that the global cycle will be at risk,” Chetan Ahya, chief economist at Morgan Stanley, wrote in a note. “We could end up in a recession in three quarters.”
Federal Reserve officials have taken note of the potential damage of the trade war to the domestic economist. In a presentation Monday, St. Louis Fed President James Bullard said global trade disputes, coupled with concerns of slower-than-anticipated domestic economic growth going forward and persistently below-target inflation, could spur more accommodative monetary policy.
“These considerations suggest a downward adjustment in the policy rate – the federal funds rate target range – may be warranted soon,” Bullard wrote in prepared remarks.
As of Monday afternoon, markets were pricing in a 98.3% probability that the central bank would cut rates at least once in 2019, according to CME Group’s FedWatch tool. Markets are pricing in a more than 99% probability of at least one rate cut within the next 12 months.
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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