U.S. indexes on track for worst week in two years amid trade fears

Stocks are slumping again Friday afternoon as fears of an escalating trade conflict between the U.S. and China rattled investors around the world. U.S. indexes are on track for their worst week in two years.

China has not responded to the tariffs President Donald Trump announced Thursday, and stocks have flipped between gains and losses as investors try to figure out what might happen next and how it will affect the global economy and company profits. The White House announced sanctions that could affect as much as US$60 billion in imports and said Beijing steals or forces foreign companies to hand over technology. China has said it will defend itself.

Read: Trump exempts close allies from tariffs

In response to the steel and aluminum tariffs President Donald Trump announced earlier this month, the Chinese government said it might place tariffs on a US$3-billion list of U.S. goods. Those goods include pork, apples, and steel pipes.

Technology companies plunged. They have made enormous gains over the last year, but since they do so much business outside the U.S., investors see them as particularly vulnerable to the effects of a trade dispute.

The S&P 500 index skidded 38 points, or 1.4%, to 2,605 as of 3:10 p.m. Eastern time. It had dropped 2.5% Thursday. The Dow Jones industrial average lost 263 points, or 1.1%, to 23,691. The Nasdaq fell 118 points, or 1.7%, to 7,048.

The Dow dropped more than 700 points Thursday, its worst loss since early February, as investors worried the dispute could escalate and could slow down global economic growth and company profits.

Germany’s DAX lost 1.8% and the French CAC-40 fell 1.4%. The FTSE 100 in Britain dipped 0.4%. Japan’s benchmark Nikkei 225 index plunged 4.5% and South Korea’s Kospi tumbled 3.2%. Hong Kong’s Hang Seng lost 2.5%.

Big U.S. companies tend to get more of their revenue from foreign customers than small companies do, and that makes them more vulnerable to damage from a trade war. With nearly 1.4 billion people, China is a big market for the largest U.S. businesses.

That’s especially true for technology companies. Roughly US$1 of every US$5 in Apple’s sales came from China, Hong Kong and Taiwan in its last year. That doesn’t take into account how much of the manufacturing and assembly of Apple products is done in Chinese factories, which could be affected if tariffs start piling up.

Chipmakers fared especially badly Friday. Micron Technology shed US$4.74, or 8%, to US$54.18 after its quarterly report and Nvidia lost US$7.632, or 3.1%, to US$234.23.

Bond prices rose. The yield on the 10-year Treasury note slipped to 2.82% from 2.83%.

Bond yields climbed earlier this week after the Federal Reserve raised interest rates, but then tumbled after the tariffs were proposed. Lisa Erickson, chief investment officer at U.S. Bank Wealth Management, said investors are concerned the rising trade tensions will slow down economic growth. If that happens, interest rates will likely rise at a slower pace.

“If we do enter more of a protracted trade war, that is likely to impact growth, so that’s likely to slow down interest rates,” she said.

Read: China’s premier wants to avoid a ‘trade war’

In another sign investors are nervous, gold and silver prices jumped. Gold climbed US$22.50, or 1.7%, to US$1,349.90 an ounce and silver gained 20 cents, or 1.2%, to $16.58 an ounce. The U.S. dollar fell to 104.82 yen from 105.61 yen. The euro rose to US$1.2367 from US$1.2307.

Defence contractors climbed after President Donald Trump signed a new government funding bill. He had tweeted a threat to veto the measure. Boeing rose US$4.80, or 1.5%, to US$324.41. Lockheed Martin added US$11.76, or 3.6%, to $338.91.

The Russell 2000 index of smaller-company stocks sank 22 points, or 1.5%, to 1,521, but it’s risen slightly this month while the S&P 500 is down 4%.

Smaller companies have held up better than larger ones during the recent tumult over tariffs, in part because they do more of their business inside the U.S. and have less to fear from international trade disputes. While the tariffs might drive up their costs, they can pass those along to consumers by raising prices. Retaliatory tariffs on U.S. exports won’t affect them as much.

Not every company breaks out how much of its revenue comes from abroad, but FactSet estimates that 30.5% of big companies in the S&P 500 comes from outside the United States. For the smaller companies in the S&P 600 index, it’s just 19.5%. Smaller companies are also getting a bigger benefit from the recent cut in corporate tax rates.

“We think a lot of the areas in the market with the greatest potential for earnings improvement this year are small- and mid-cap stocks, things that have the biggest benefit from tax reform and are less subject to trade wars,” said Eric Marshall, portfolio manager at Hodges mutual funds.

The price of oil climbed $1.58, or 2.5%, to US$65.88 a barrel in New York. Brent crude, the international standard for oil prices, added US$1.54, or 2.2%, to US$70.45 a barrel in London.

Wholesale gasoline rose 2 cents to US$2.04 a gallon. Heating oil added 3 cents to US$2.02 a gallon. Natural gas dipped 3 cents to US$2.59 per 1,000 cubic feet.

Copper fell 3 cents to US$2.99 a pound.