Investors are dealing with a painful new reality: The trade war between the United States and China could last indefinitely.
That anxiety spread across the stock markets on Monday, as investors around the world tried to divine the potential fallout to economic growth and corporate profits. Bonds and commodities, too, flashed warnings of a slowdown.
The stock losses have brought an end to a recent calm that had settled over Wall Street. For months, investors had assumed that the trade war, a major hazard for the global economy, would end soon. Just weeks ago, the S&P 500 reached a record high.
That illusion has been shattered, as concerns mount about slowing growth and rising costs. China said on Monday that it would increase tariffs on nearly $60 billion of goods, in response to a similar move last week by the Trump administration.
The S&P 500 fell 2.4 percent on Monday. It was the American stock benchmark’s worst day since early January. In all, the S&P 500 is down 4.6 percent in May.
[Asian and European markets stabilized on Tuesday, but China continued its defiant rhetoric.]
Companies in trade-sensitive sectors like agriculture and semiconductor manufacturing were particularly hard hit. The tech-heavy Nasdaq composite index fell 3.4 percent, its worst decline in 2019.
The selling has come even as the American economy continues to show significant momentum. The economy expanded at a robust 3.2 percent annual rate in the first three months of the year. In April, unemployment fell to 3.6 percent, the lowest level since 1969.
But the declines in the financial markets raise the prospect of a negative feedback loop: As worries about the economy send stock prices lower, the weakness could prompt concern among the executives whose decisions drive economic growth.
“The longer the market turmoil continues, the bigger a hit it can have on economic activity,” said Kathy Bostjancic, chief United States financial economist at Oxford Economics, a research firm.
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