Stocks Have Worst Weekly Drop of 2019 as Trade War Rattles Investors

Stocks suffered their worst week of the year as jitters over trade returned to the financial markets, and investors worried that the Federal Reserve might not be as supportive of them as earlier hoped.

The S&P 500 index extended its slide for a fifth consecutive day, closing down about 0.7 percent. For the week, the benchmark declined about 3 percent.

The drop came as investors contended with a flood of economic news that challenged the underpinnings of the markets’ nearly two-month-long rally.

On Wednesday, the Fed cut its target interest rate for the first time in a decade, but stopped short of signaling that it was beginning the aggressive rate-cutting campaign that investors had increasingly expected.

Then on Thursday, President Trump threatened to impose tariffs on $300 billion in goods that the United States buys from China. The threat, which came a day after senior American trade officials left Shanghai after talks with their Chinese counterparts, deepened the prospects of a lengthy conflict between the two countries. Chinese officials said they would respond with measures of their own.

The back-to-back developments disrupted what had been a fairly placid period for the stock market.

“We had a one-two punch of the Fed and trade this week and that came against a backdrop of middling earnings,” said Savita Subramanian, head of United States equity and quantitative strategy for Bank of America Merrill Lynch. “It reintroduced the idea that the markets can’t go up every day.”

On Friday, the monthly report on employment in the United States showed that the country’s labor market continued to add jobs at a solid but slowing pace. Employers added 164,000 jobs in July, the Labor Department reported, a figure that largely met economists’ expectations.

The decline on Wall Street was led by technology companies. The tech-heavy Nasdaq composite index fell 1.3 percent on Friday and the Dow Jones industrial average dipped 0.4 percent. The Russell 2000 index of small-capitalization stocks, typically viewed as weighted toward more domestically focused companies, fell 1.1 percent.

Global markets also slid on Friday. The Japanese Nikkei 225 index fell more than 2 percent, while in Britain, the FTSE 100 ended the day down 2.3 percent.

Concern about the economic effect of the trade war was also apparent in other markets. Crude oil rose Friday, but the price was down 4.5 percent for the week. The yield on the benchmark 10-year Treasury note dropped to 1.855 percent from 2.081 percent a week earlier. That is the largest week-over-week drop in about seven years, according to Tradeweb. Bond yields fall when prices rise.

Stocks this year have strongly rebounded from the steep declines of the final three months of 2018. An abrupt reversal on interest rates by the Fed and easing trade tensions between the United States and China underpinned the rally. But amid the steady march higher, there have been painful bouts of volatility.

In May, a rise in trade tensions sent the S&P 500 down 6.6 percent. But stocks soon resumed their climb as trade talks reopened and the Fed indicated it stood ready to cut rates at the first sign of economic weakness. The S&P 500 had gained 10 percent from the end of May to reach a record on July 26, and had gone 38 days without a 1 percent move in either direction.

But with a less-aggressive Fed, and the trade war between the world’s two largest economies dragging on the global economy and corporate earnings, swings in stock prices could return to the markets, Ms. Subramanian said.

“Volatility, which has been super low, is going to come back,” she said. “This trade drama isn’t going away.”