NEW YORK (Reuters) - U.S. stocks dropped in a broad sell-off on Monday as simmering geopolitical tensions spooked equity investors and drove a bond market rally while the protracted U.S.-China trade war stoked fears of impending recession.
All three major U.S. stock indexes closed sharply lower in light trading, with little to soothe market jitters over Hong Kong protests, Argentine President Mauricio Macri’s primary election defeat, and the U.S.-China tariff dispute that has rattled markets for months.
“The stock market’s selling off because the bond market is rallying like crazy,” said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago. “There’s a flight to safety and there are multiple silos of political uncertainty.”
“People are starting to give up and buy treasuries to wait it out,” Battle said. “Gold is a beneficiary too.”
The flight from risk sent gold prices up 1%, hovering at a more than six-year high.
The closely-watched yield spread between U.S. 2-year and 10-year notes narrowed to its smallest difference since at least 2010, according to Refinitiv data.
Goldman Sachs Group Inc (GS.N) said on Sunday that its economists see recessionary risks increasing as the U.S.-China trade war drags on.
“What investors are coming to realise is that the goings on outside U.S. borders is having an impact on global as well as U.S. economic growth,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. “Investors are coming around to the fact that no matter where interest rates get pegged it will not mitigate the trade issues.”
Data on inflation, housing starts and retail sales are due later in the week, and will be scrutinized for further signs of economic softening.
The Dow Jones Industrial Average .DJI fell 391 points, or 1.49%, to 25,896.44, the S&P 500 .SPX lost 35.96 points, or 1.23%, to 2,882.69 and the Nasdaq Composite .IXIC dropped 95.73 points, or 1.2%, to 7,863.41.
All 11 major sectors of the S&P 500 ended the session in negative territory, with financials .SPSY, materials .SPLRCM, energy .SPNY and consumer discretionary .SPLRCD suffering the largest percentage drops.
Second-quarter reporting season is approaching the finish line, with 452 of the companies in the S&P 500 having reported. Of those, 73.5% have beaten consensus estimates.
Looking ahead to the third quarter, there have been 58 negative pre-announcements compared with 19 positive, resulting in a 3.1 negative-positive ratio, higher than 2.7 average since 1997, according to Refinitiv.
Shares of Amgen Inc (AMGN.O) advanced 4.9% following a court ruling that upheld two patents relating to its drug Enbrel.
Coach owner Tapestry Inc (TPR.N) and Versace owner Capri (CPRI.N) dropped 3.9% and 4.4%, respectively, after Chinese social media criticized the companies for selling T-shirts that showed Chinese-controlled territories of Hong Kong and Macau as countries.
Media companies CBS Corp (CBS.N) and Viacom Inc (VIAB.O) are in the final stages of negotiating an all-stock merger that values Viacom at a discount to its Friday closing price, sending Viacom shares down 4.9%.
Declining issues outnumbered advancing ones on the NYSE by a 2.33-to-1 ratio; on Nasdaq, a 2.10-to-1 ratio favoured decliners.
The S&P 500 posted 23 new 52-week highs and 22 new lows; the Nasdaq Composite recorded 42 new highs and 170 new lows.
Volume on U.S. exchanges was 6.09 billion shares, compared with the 7.24 billion average over the last 20 trading days.
Reporting by Stephen Culp; additional reporting by Sinead Carew; Editing by Sonya Hepinstall