Wall Street slumped on Friday after U.S. President Donald Trump escalated his trade conflict with China after Beijing tightened its rare earth restrictions.
Late on Friday after Wall Street's official trading session, Trump said he would impose an additional 100% tariff on imports from China, as well as export controls on critical U.S.-made software, an announcement that sent Big Tech shares tumbling.
Nvidia, Tesla, Amazon and Advanced Micro Devices all fell more than 2% after the bell.
Those losses added to already steep declines during Friday's trading session after Trump warned in a post on Truth Social earlier in the day that he was weighing a "massive" tariff increase on Chinese imports and said there is no reason to meet with China's President Xi Jinping in two weeks as planned, adding that there are "many other countermeasures" under consideration.
Trump's latest move against China shocked markets and threatened further damage to already strained relations between the world's two largest economies.
All three major U.S. stock indexes sold off sharply during Friday's session before stocks extended losses after the bell.
The S&P 500 and the Nasdaq suffered their largest single-day percentage drops since April 10. On a weekly basis, the S&P 500 logged its biggest drop since May, while the Nasdaq's Friday-to-Friday decline was its steepest since April.
"The second largest economy and the first largest economy are arguing again, and we're seeing a sell first, ask questions later mentality to end the week," said Ryan Detrick, chief market strategist at Carson Group in Omaha. "President Trump's post did truly come out of nowhere, which opened the door for some extreme volatility."
"And it's important to remember we haven't had this level of volatility in a long time," Detrick added. "One could argue we were due for some spookiness this October."
Trump's erratic trade policies have rattled markets since his April 2 "Liberation Day" tariff announcement, with on-again, off-again trade negotiations, causing turbulence across asset classes.
The Dow Jones Industrial Average fell 878.82 points, or 1.90%, to 45,479.60, the S&P 500 lost 182.60 points, or 2.71%, to 6,552.51 and the Nasdaq Composite lost 820.20 points, or 3.56%, to 22,204.43.
The Philadelphia Stock Exchange Semiconductor Index dropped 6.3%, in the wake of Trump's announcement.
China produces over 90% of the world's processed rare earths and rare earth magnets, which are critical for products ranging from electric vehicles and aircraft engines to military radars.
An escalating trade war between the two largest global economies could trigger major supply chain disruptions, particularly for the technology, electric vehicle and defense industries.
The CBOE Volatility Index viewed as a reflection of market anxiety, reached its highest closing level since June 19.
U.S.-listed shares of Chinese companies dropped sharply, with heavyweights Alibaba Group Holding , JD.com Inc and PDD Holdings down between 5.3% and 8.5%.
Qualcomm fell 7.3% after China's market regulator said the country had launched an antitrust investigation into the semiconductor manufacturer over its acquisition of Israel's Autotalks.
The U.S. government is currently in its 10th day of shutdown as a congressional impasse has so far yielded few signs of progress or serious negotiation. This has resulted in a data blackout, with official government economic indicators postponed for the time being.
Still, data from independent sources continues unabated. The University of Michigan released its preliminary take on October consumer sentiment, which is drifting along near historic lows as high prices and weakening job prospects remain at the forefront of consumer worries.
In the absence of official data, investors look to the U.S. Federal Reserve for clues regarding near-term interest rate cuts.
Fed Governor Christopher Waller said that while private employment data continues to show labor market weakness, the central bank should act with caution when reducing the Fed funds target rate as it evaluates the economy.
St. Louis Fed President Alberto Musalem echoed that sentiment, saying that another rate cut could be warranted as insurance against a weakening labor market. "I believe that we have to tread with caution" before monetary policy becomes too accommodative, he said.
A spate of large financial firms - including JPMorgan Chase, Goldman Sachs, Citigroup, and Wells Fargo - is set to release quarterly results on Tuesday, marking the unofficial launch of third-quarter earnings season.
Analysts currently expect third-quarter S&P 500 earnings growth of 8.8% year-on-year, on aggregate, compared with annual growth of 13.8% last quarter and 9.1% in Q3 2024, according to LSEG data.
Declining issues outnumbered advancers by a 4.36-to-1 ratio on the NYSE. There were 215 new highs and 167 new lows on the NYSE.
On the Nasdaq, 799 stocks rose and 3,936 fell as declining issues outnumbered advancers by a 4.93-to-1 ratio.
The S&P 500 posted 18 new 52-week highs and 19 new lows while the Nasdaq Composite recorded 102 new highs and 145 new lows.
Volume on U.S. exchanges was 24.26 billion shares, compared with the 20.15 billion average for the full session over the last 20 trading days.
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