Wall Street's main indexes hit a near three-month low on Wednesday, as growing fears of a protracted trade war between the United States and China sent investors scurrying for the safety of government bonds. Chinese newspapers warned on Wednesday that Beijing could use rare earths to strike back at the United States after President Donald Trump remarked he was "not yet ready" to make a deal with China over trade.
Fuelling worries, China's Huawei Technologies Co Ltd filed a lawsuit against the US government in its latest bid to fight sanctions from Washington. "The question about what China will do with rare has always been there, it is certainly alarming and ratchets up the level of uncertainty," said Tom Martin, senior portfolio manager at GlobAlt Investments in Atlanta. "It's a flight to safety in the United States. There are fears that are driving investors to Treasuries and you have a market that reached its peak about a month ago."
The benchmark S&P 500 index is now about 6% away from its all-time high of 2,954.13 hit on May 1. The uncertainty in markets have pressured investors to dump equities and seek safety in US government debt, which has led to an inversion of the yield curve between three-month bills and 10-year notes, a precursor to a possible recession.
Federal funds futures indicated that traders saw a 62% chance the US central bank would lower policy rates by a quarter at its Sept. 17-18 meeting, compared with a 50% likelihood late on Tuesday. Interest-rate sensitive banking stocks fell 0.78%, while the broader financial sector was off 0.69%.
Technology stocks fell 0.66% and weighed the most on markets, hit by losses in shares of iPhone maker Apple Inc, Microsoft Corp and chipmakers. The Philadelphia chip index was down 0.47%. At 12:49 p.m. ET, the S&P 500 was down 24.89 points, or 0.89%, at 2,777.50 and the Nasdaq Composite was down 69.78 points, or 0.92%, at 7,537.57, their lowest level since March. The Dow Jones Industrial Average was down 305.83 points, or 1.21%, at 25,041.94, its lowest since February.