By Michael Wursthorn and Anna Isaac
The Dow Jones Industrial Average suffered its biggest single-day pullback since early October on Tuesday after President Trump suggested the trade war with China could continue well into next year.
The blue-chip index fell 1%, its third straight session of losses, as investors sought less risky assets. The yield on the 10-year U.S. Treasury note dropped by the biggest margin since August.
Stocks pulled back after Mr. Trump after he said he had "no deadline" for reaching a trade accord with China during a meeting with the North Atlantic Treaty Organization secretary-general. He added that he liked "the idea of waiting until after the election" to reach a deal.
The pronouncements jolted investors, who had expected the U.S. and China to reach a "phase-one" trade deal this month. Such a move would have likely staved off further tariff increases and signaled to investors that the two sides were working to de-escalate tensions after more than a year of contentious negotiations.
That now seems less likely, leading investors to pull back from risky assets, such as stocks, and load up again on investments considered safer during periods of economic turbulence, including gold and bonds. Trade tariffs have weighed on corporate profits of manufacturers, tech and other companies all year, and a protracted trade fight will further eat into profit margins, analysts said.
"It's extremely difficult to base any investment thesis around trade, given how challenging the protagonists are," said Colin Reedie, co-head of global fixed income at Legal & General Investment Management. "It's been a fairly bullish risk environment, and markets are squeezing higher toward the end of the year, so they are a little bit more vulnerable to bad news."
Tuesday's losses also appeared to factor in Mr. Trump's threat to expand tariffs beyond imports from China. Over the past two days, the Trump administration has proposed new levies on goods from France, Brazil and Argentina.
The Dow industrials fell 280.23 points to 27502.81, its biggest decline since Oct. 8, although less severe than the more than 450-point-loss the index had racked up earlier in the session. The S&P 500 declined 20.67 points, or 0.7%, to 3093.20, and the Nasdaq Composite shed 47.34 points, or 0.6%, to 8520.64.
During a conversation with reporters Tuesday, Mr. Trump described the day's stock-market losses as "peanuts" and said he prefers to follow employment figures, which have remained strong most of the year.
"I don't watch the stock market," Mr. Trump said. "I watch jobs."
Tuesday's declines, however, knocked major U.S. stock indexes further from their records, underscoring the negative impact trade tariffs continue to have on the market.
All three benchmarks fell Friday during a light session of trading following the Thanksgiving holiday, proceeded by heavier losses Monday on disappointing manufacturing data and threats from Mr. Trump to restore tariffs on steel and aluminum imports from Brazil and Argentina.
Including Tuesday's losses, the Dow is off 2.3% from its Nov. 27 all-time high, a mark Mr. Trump had touted on Twitter just before the Thanksgiving holiday.
"Opening a new trade war could prove more detrimental to U.S. equities than the conflict with China has been," Jonas Goltermann, a senior economist at Capital Economics, wrote in a note Tuesday morning.
Mr. Goltermann said big U.S. companies, especially in the tech sector, have a lot to lose if the European Union were to take a tougher stance. U.S. investment banks also have significant exposure to Europe and could be a target for EU regulators, he added.
Trade-sensitive stocks led the Dow industrials lower. Shares of Caterpillar fell $2.90, or 2%, to $140.06, while 3M, Boeing and Apple also fell. Goldman Sachs Group and JPMorgan Chase -- the bank stocks in the index -- stumbled alongside the pullback in bond yields, which tends to hurt lenders' profitability. Just four blue-chip stocks notched modest gains.
The declines reverberated through the stock market well beyond the Dow. The industrial, consumer discretionary, energy and financial sectors in the S&P 500 all fell more than 1%. Tech and material stocks in the broad index also broadly fell.
In Europe, the regional benchmark, the Stoxx Europe 600, fell 0.6%. In Asia, Japan's Nikkei slipped 0.6%. Hong Kong's Hang Seng shed 0.2%.
Investors, meanwhile, rotated into shares of utility companies and real-estate firms, considered bond proxies for the hefty dividends they pay. Utility stocks in the S&P 500 added 0.5%, while shares of real-estate companies rose 0.7%.
Other haven assets also rallied as investors reassessed the potential for a trade agreement between the U.S. and China.
Gold rose about 1%. The yield on the benchmark 10-year U.S. Treasury note, which moves inversely to prices, fell to 1.708% from 1.835% a day earlier, its biggest decline since Aug. 1.
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com and Anna Isaac at email@example.com
(END) Dow Jones Newswires
December 03, 2019 17:19 ET (22:19 GMT)Copyright (c) 2019 Dow Jones & Company, Inc.