* Major indexes down over 6% in May
* U.S. Treasury yield curve inversion deepens
* 8 sectors drop more than 1%
* Dow down 1.41%, S&P 500 down 1.32%, Nasdaq down 1.51%
(New throughout, updates prices, market activity and comments,
new byline)
By Chuck Mikolajczak
NEW YORK, May 31 (Reuters) - U.S. stocks dropped on Friday,
as the S&P 500 closed out the month with its biggest May slump
since 2010, after President Donald Trump's surprise threat of
tariffs on Mexico fueled fears that a trade war on multiple
fronts could lead to a recession.
Washington will impose a 5% tariff from June 10, which would
rise steadily to 25% until illegal immigration across the
southern border was stopped, Trump tweeted late on Thursday.
Mexican President Andres Manuel Lopez Obrador responded by
urging his U.S. counterpart to back down.
"It really is applying a trade tariff to a national security
issue and that is different," said Christopher Smart, head of
Barings Investment Institute in Boston.
"That is the issue and now what country is not vulnerable to
tariffs or what political, diplomatic or national security issue
won't now include the threat of tariffs to resolve. So if you
are an investor this is a significantly different world."
The Dow Jones Industrial Average .DJI fell 354.84 points,
or 1.41%, to 24,815.04, the S&P 500 .SPX lost 36.8 points, or
1.32%, to 2,752.06 and the Nasdaq Composite .IXIC dropped
114.57 points, or 1.51%, to 7,453.15.
Both the S&P 500 and Nasdaq closed below their 200-day
moving averages for the first time since March 8, seen as a
strong technical support level that could presage further
losses.
For the week, the Dow fell 3.01%, the S&P 500 dropped 2.62%,
the Nasdaq declined 2.41%. The weekly decline was the sixth
straight for the Dow, its longest weekly losing streak since
2011. For the month, the Dow fell 6.69%, the S&P 500 dropped
6.58%, the Nasdaq declined 7.93% to mark the first monthly
decline of the year for each index.
Investors have grown more worried about deteriorating trade
talks between the U.S. and China and have sought safety in
government bonds. Technology .SPLRCT and energy .SPNY have
been among the hardest hit sectors since May 3 as Trump ramped
up tariff threats with Beijing.
U.S. Treasury yields fell to new multi-month lows. Benchmark
10-year yields US10YT=RR dropped as low as 2.128 percent, the
lowest since September 2017.
The yield curve, as measured in the gap between three-month
US3MT=RR and 10-year bond yields US10YT=RR , remained deeply
inverted. Some investors view this as a sign a recession is
likely in one to two years.
Of the 11 major S&P sectors, only defensive plays utilities
.SPLRCU and real estate .SPLRCR were on the plus side while
eight were showing drops of more than 1%.
U.S. carmakers and manufacturers were also pulled lower.
General Motors Co GM.N dropped 4.25% and Ford Motor Co F.N
2.26%, pushing the consumer discretionary .SPLRCD sector down
1.44%.
Adding to the downbeat mood, Beijing warned on Friday that
it would unveil an unprecedented hit-list of "unreliable"
foreign firms, as a slate of retaliatory tariffs on imported
U.S. goods was set to kick in at midnight. Tariff-sensitive
industrials .SPLRCI declined 1.46%.
Data showed U.S. consumer prices in April increased by the
most in 15 months, but a cooling in spending pointed to a
slowdown in economic growth that could moderate inflation
pressures. Among other stocks, Gap Inc GPS.N tumbled 9.32% as the
worst performer on the S&P 500 after the apparel retailer cut
its 2019 profit forecast. Constellation Brands STZ.N , which has substantial brewery
operations in Mexico, slid 5.79%.
Declining issues outnumbered advancers on the NYSE by a
2.52-to-1 ratio; on Nasdaq, a 3.20-to-1 ratio favored decliners.
The S&P 500 posted four new 52-week highs and 52 new lows;
the Nasdaq Composite recorded 12 new highs and 210 new lows.
About 7.75 billion shares changed hands in U.S. exchanges,
compared with the 7.01 billion daily average over the last 20
sessions.
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GRAPHIC-S&P 500 sector performance since May 3 https://tmsnrt.rs/2WC0dic
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