Stocks on track for worst May in nearly a decade as Trump threatens tariffs on Mexico #trump #stockstowatch

Stocks skidded Friday, with the market on track for its worst May since 2010, after President Donald Trump unexpectedly announced plans to impose tariffs on imports from Mexico in an attempt to pressure the country to stem the flow of migrants across the U.S. border.

Meanwhile, reports said China may be readying fresh retaliatory moves against the U.S. in that trade dispute, while data showed a contraction in Chinese manufacturing activity this month.

How are major benchmarks faring?

The Dow Jones Industrial Average DJIA, -1.18% dropped 240 points, or 1%, to 24,929. The S&P 500 index SPX, -1.14% fell 26 points, or 0.9%, to 2,762 and the Nasdaq Composite COMP, -1.22%  dropped 82 points, or 1.1%, to 7,485.

What’s driving the market?

Late Thursday, just as Asian markets began trading, Trump announced in a tweetthat the U.S. would impose a 5% tariff on all goods from Mexico until that country stops the flow of illegal immigrants into the country. He said the tariffs will rise to 10% on July 1 if the crisis persists, and by another 5% for every successive month, up to 25% by Oct. 1.

“Tariffs will permanently remain at the 25% level unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory,” Trump said.

The threat comes as the White House triggered the process for submitting a bill to Congress that would implement the new the U.S.-Mexico-Canada Agreement, the successor to the North American Free Trade Agreement.

Stocks were also battered after a tweet from Hu Xijin, the widely followed editor of the Global Times, indicated that China will hit back hard. “Based on what I know, China will take major retaliative measures against the U.S. placing Huawei and other Chinese companies on Entity List. This move indicates Beijing will not wait passively and more countermeasures will follow,” the editor tweeted. Global Times is a Chinese state-owned tabloid that’s watched for clues to government policy stances.

Beijing reportedly has a plan ready to go to restrict exports of rare earth materials to the U.S. if they feel it is necessary, according to Bloomberg. Those measures would be concentrated on heavy rare earths, which are used in autos and lots of consumer products and particularly needed by the U.S.

Investors were also digesting negative economic news out of China, as manufacturing activity contracted in May, weighed by weaker export orders amid escalating trade tensions with the U.S.

What economic data are in focus?

Data showed April personal incomes rose 0.5%, while consumer spending rose 0.3%. The core personal consumption expenditure, or PCE, index, the Federal Reserve’s preferred inflation measure, rose 0.2%, in line with forecasts.

The University of Michigan’s final consumer sentiment index reading for May came in at 100 versus an initial 102.4, but remained up from 97.2 in April.

What are analysts saying?

“The escalating trade tensions are a challenge. At the moment it is a challenge for market sentiment. It is not yet a challenge for the economic data,” said John Bellows, a portfolio manager at Western Asset Management, in a note. “The models we have looked at suggest the economic impacts could be manageable, and the effects will most likely be transitory. The conflicts could also get resolved. But, if sentiment continues to deteriorate then that itself can become a more serious issue.”

The worst-case scenario is one in which foreign governments, namely China and Mexico, “simply wait Trump out given we’re 19 months from an election,” wrote Tom Essaye, founder of Sevens Report Research, in a report.

“In that outcome, there is no China trade deal and tariffs (Chinese and Mexican) act as an anchor on global growth and market sentiment for 18 months, increasing the chances of recession,” he said.

What stocks are in focus?

Shares of auto makers with substantial production exposure to Mexico were under heavy pressure. Shares of General Motors Co. GM, -4.41%  fell 4.4%, while Ford Motor Co. shares F, -2.77%  declined 2.8%.

Japanese auto makers tumbled and French and German auto makers also took a beating.

Shares of Uber Technologies Inc. UBER, +0.55%  edged up 0.1% after the ride-hailing company late Thursday reported a first quarter loss of $1.01 billion. Investors are cheering assurances from executives that a price war with rival Lyft Inc. LYFT, +4.81% was settling down.

Shares of Big Lots Inc. BIG, +4.92%  jumped 5.8% after the retailer reported first-quarter earnings that topped Wall Street expectations.

How were other markets trading?

Stocks in Asia put in a mixed performance, with the Japan’s Nikkei 225NIK, -1.63% falling 1.6% as the yen climbed and weighed on exporters. China’s Shanghai Composite Index SHCOMP, -0.24% was steady, while Europe stocks were under pressure.

The Mexican peso USDMXN, +2.4919% fell sharply, with that currency recently down over 2% against the dollar, while the Japanese yen USDJPY, -1.06% soared on haven-related buying. 

Rattled investors also moved into perceived haven assets such as bonds, with the yield on the 10-year note TMUBMUSD10Y, -3.03% dropping 5 basis points to 2.166%, while the 2-year note yield TMUBMUSD02Y, -5.47% dipped below 2% for the first time since early 2018.

Oil prices CLN19, -4.45% tumbled, headed for their worst monthly decline since November, gold GCQ19, +1.35%  gained, climbing above $1,300 an ounce, and the ICE Dollar Index DXY, -0.35% edged lower.

By SUE CHANG & William Watts