Wall Street tumbles as Donald Trump escalates trade dispute with China

Jerome Powell says will 'act as appropriate' to support growth as indexes fall.

Wall Street's three main indexes lost more than 1% on Friday after President Donald Trump ordered U.S. companies "to immediately start looking for an alternative to China" in response to Beijing's threat to impose retaliatory tariffs on U.S. goods.

Trump gave no detail on how he might proceed with any such order, although he said he would be offering a response later on Friday.

Earlier in the day, China vowed to impose additional tariffs on goods worth $75 billion that include agricultural products, crude oil, small aircraft and cars. Tariffs on some products would take effect on September 1 and others on December 15.

The indexes were on course to give up their weekly gains made on hopes of stimulus measures from major central banks and governments as well as a solid batch of retail earnings.

"It's a fair reaction from the markets. I don't think anyone thought we'd get to this level," said Michael O'Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.

U.S. stocks had earlier recovered from their lows after Federal Reserve Chair Jerome Powell said the Fed would "act as appropriate" to keep the current economic expansion on track, supporting bets on a further decline in key borrowing costs.

"Interest rate cuts, while they help the economy, they're not going to be enough to offset a major global trade war. It seems that's the direction we're heading in," O'Rourke said.

While traders are still widely anticipating a 25 basis point cut from the Federal Reserve in September, expectations of a more aggressive 50 basis point cut rose to 10%, according to CME Group's FedWatch tool.

At 11:35 a.m. ET, the Dow Jones Industrial Average was down 374.75 points, or 1.43%, at 25,877.49 and the S&P 500 was down 45.22 points, or 1.55%, at 2,877.73. The Nasdaq Composite was down 142.93 points, or 1.79%, at 7,848.46.

Seven of the 11 major S&P sectors posted losses of more than 1%, with a 2% decline in the energy sector leading the decliners.

The tariff-sensitive Philadelphia chip index slid 1.50%. Declining issues outnumbered advancers for a 3.00-to-1 ratio on the NYSE and for a 2.98-to-1 ratio on the Nasdaq.

The S&P index recorded 33 new 52-week highs and 17 new lows, while the Nasdaq recorded 34 new highs and 90 new lows.