Fear crept into U.S. markets on Thursday afternoon with the Dow Jones Industrial Average plunging 723.42 points (2.94%) while the S&P 500 fell 68.24 points (2.52%). The Nasdaq fell 2.4%.
The plunges came after President Donald Trump ordered tariffs on Chinese goods, describing the US trade deficit with China as “out of control.”
“We have a tremendous intellectual property theft situation going on,” Trump said.
In ETFs, the selloff was felt by the Financial Select Sector SPDR (NYSEArca: XLF), the largest financial services ETF, and the Industrial Select Sector SPDR (NYSEArca: XLI), the largest exchange traded fund tracking industrial stocks, which were both down over 3%.
Meanwhile, the VIX jumped 30% and held its ground at the 23.30 level, according to Yahoo Finance data.
Market observers said the overnight selling looked to begin with Tencent, down 5%, after bad earnings.
Selling pressure was compounded following Trump’s announcement to impose trade tariffs. Metals and mining sectors fell quickly, including the SPDR Metals & Mining (XME), which fell 6%.
Trump Tariffs on Chinese Products Drives Market Downwards
The Trump administration on Thursday instructed the office of the U.S. Trade Representative to draw up a list of tariffs on Chinese products totaling up to $60 billion, reports MarketWatch.
“The tariffs are expected to target sensitive technologies that the U.S. considers vital to the U.S. economy in the years ahead, and the announcement follows a similar one focused on steel and aluminum,” MarketWatch reported late Thursday.
Bloomberg is reporting that China’s ambassador to the U.S., Cui Tiankai, responded by saying the country doesn’t want a trade war “but we are not afraid of it,” adding that the Chinese embassy in Washington later issued a statement ratcheting up the rhetoric, saying “if a trade war were initiated by the U.S., China would fight to the end to defend its own legitimate interests.”
The trade crackdown is a big deal because the United States and China are the world’s two biggest economies. A major slowdown in trade could darken the otherwise bright economic outlook.
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