The S&P 500 fell 2% after Trump threatened to impose more tariffs on China

The Standard & Poor’s 500 index fell 2 percent after US President Donald Trump broke a months-long calm on Wall Street by threatening to raise tariffs on China. A key measure of Wall Street’s strength is headed toward its worst loss since April.

The Dow Jones Industrial Average fell 622 points, and the Nasdaq Composite fell 2.7 percent. Stocks were on track for a slight gain in the morning, until Trump took to his social media platform and said he was considering a significant increase in tariffs on Chinese imports.

He is troubled by China’s restrictions on its exports of rare earth elements, materials needed to make everything from consumer electronics to jet engines.

“We have been contacted by other countries that are very angry about this major trade hostility, which came out of nowhere,” Trump wrote on Truth Social. He also said “there now appears to be no reason” to meet Chinese leader Xi Jinping, after earlier agreeing to do so as part of an upcoming trip to South Korea.

Escalating tensions between the world’s two largest economies caused a broad decline on Wall Street, with nearly four out of every five stocks within the S&P 500 falling. Everything from big technology companies like Nvidia and Apple to small-cap stocks looking to weather uncertainty over tariffs and trade sank.

US stocks were already facing widespread criticism that their prices had risen too much after they rose relentlessly by almost 35 percent from their lowest level last April, sending the S&P 500 index to record levels.

Critics say the market appears too expensive as prices have risen much faster than corporate profits. Concerns are particularly high about companies working in the artificial intelligence industry, where comparisons are being drawn to the dot-com bubble of 2000 that eventually burst. For stocks to appear less expensive, either their prices need to fall, or profits need to rise.

Levi Strauss shares fell 11.4 percent, suffering one of the largest losses in the market, even though it reported stronger profits in the fourth quarter than analysts expected.

Its full-year earnings outlook was also within the range of Wall Street estimates, but the jeans and apparel company could simply face the challenge of rising expectations. Its stock prices entered today with a stellar rise of almost 42 percent for the year so far.

Oil markets are reacting strongly

Some of the strongest action on Friday was in the oil market, where the price of a barrel of benchmark US crude oil fell 4.1 percent to US$58.99.

This raid occurred as the ceasefire between Israel and Hamas entered into force in Gaza, which raised hopes for a reduction in violence in the Middle East. Ending the war could remove concerns about disruption to oil supplies, which has kept the price of crude oil higher than it would have been otherwise.

Brent crude, the international standard, fell 3.9 percent to $62.66 a barrel. In the bond market, the yield on 10-year Treasury notes fell to 4.07 percent from 4.14 percent late Thursday.

A report from the University of Michigan indicated that sentiment among American consumers remains stagnant.

“Pocket-pocket issues such as rising prices and poor employment opportunities remain at the forefront of consumers’ minds,” says Joan Hsu, director of consumer surveys. “At this time, consumers do not expect a significant improvement in these factors.”

The labor market slowed so much that the Federal Reserve cut its key interest rate last month for the first time this year. Fed officials have also proposed several more interest rate cuts through the end of next year to give the economy more breathing room.

But Chairman Jerome Powell also said they may have to change course if inflation remains high. This is because lower interest rates can push inflation to higher levels.

One encouraging sign from the University of Michigan’s preliminary survey said consumers’ expectations for inflation next year fell to 4.6 percent from 4.7 percent the previous month. While this remains high, the direction of change could still help the Fed by reducing upward pressure on inflation.

In overseas stock markets, indices fell in most parts of Europe and Asia.

Hong Kong’s Hang Seng fell 1.7 percent and Japan’s Nikkei 225 fell 1 percent in two of the larger moves. But South Korea’s Kospi index jumped 1.7 percent after trading reopened after a holiday.