Wall Street drops on escalating U.S.-China trade war

(Reuters) - U.S. stocks slid on Wednesday, led by industrial shares, after Washington’s threat to impose tariffs on an additional $200 billion worth of Chinese goods raised fears of an escalating trade war.

U.S. officials on Tuesday issued a list of thousands of Chinese imports that the Trump administration wants to target with new tariffs. In response, China accused the United States of bullying and warned it would hit back.

The biggest drags on the blue-chip Dow were Boeing, 3M, Caterpillar and Chevron. Their shares were down between 1.2 percent and 2 percent.

Ten of the 11 major S&P 500 sectors were also lower. The S&P industrials sector tumbled 1.21 percent, making it the biggest decliner and drag on the benchmark S&P.

“The market is primarily focused on the potential trade war. However, the fundamentals are just too strong to be shaken by geopolitical events,” said Kevin Miller, chief investment officer of asset management company E-Valuator Funds.

Miller said during the back and forth on tariffs between the United States and China, the Shanghai market has fallen 16 percent for the year, while the S&P 500 index is still up about 4 percent, indicating that U.S. markets were holding up much better.

But Morgan Stanley told clients that the approaching U.S. earnings season could also trigger a new wave of risk aversion if firms start warning of slower earnings growth due to trade tariffs.

At 11:35 a.m. EDT the Dow Jones Industrial Average was down 159.29 points, or 0.64 percent, at 24,760.37, the S&P 500 was down 15.20 points, or 0.54 percent, at 2,778.64 and the Nasdaq Composite was down 43.01 points, or 0.55 percent, at 7,716.19.

However, the drop is not as steep as what was seen in late March and early April when the escalating trade rhetoric between China and the United States led to the S&P falling more than 2 percent on four occasions.