NEW YORK (Reuters) - U.S. stocks dropped in a broad sell-off on Monday as simmering geopolitical tensions spooked equity investors and drove a bond market rally while the protracted U.S.-China trade war stoked fears of impending recession.
All three major U.S. stock indexes closed sharply lower in light trading, with little to soothe market jitters over Hong Kong protests, Argentine President Mauricio Macri’s primary election defeat, and the U.S.-China tariff dispute that has rattled markets for months.
“The stock market’s selling off because the bond market is rallying like crazy,” said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago. “There’s a flight to safety and there are multiple silos of political uncertainty.”
“People are starting to give up and buy treasuries to wait it out,” Battle said. “Gold is a beneficiary too.”
The flight from risk sent gold prices up 1%, hovering at a more than six-year high.
The closely-watched yield spread between U.S. 2-year and 10-year notes narrowed to its smallest difference since at least 2010, according to Refinitiv data.
Goldman Sachs Group Inc said on Sunday that its economists see recessionary risks increasing as the U.S.-China trade war drags on.
“What investors are coming to realize is that the goings on outside U.S. borders is having an impact on global as well as U.S. economic growth,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. “Investors are coming around to the fact that no matter where interest rates get pegged it will not mitigate the trade issues.”
Data on inflation, housing starts and retail sales are due later in the week, and will be scrutinized for further signs of economic softening.