* Major indexes down over 6% in May
* U.S. Treasury yield curve inversion deepens
* 8 sectors drop more than 1%
* Dow down 1.26%, S&P 500 down 1.21%, Nasdaq down 1.29%
(Updates to mid-afternoon, changes byline)
By Chuck Mikolajczak
NEW YORK, May 31 (Reuters) - U.S. stocks dropped on Friday,
putting the S&P 500 on track for its first monthly drop of the
year after President Donald Trump's surprise threat of tariffs
on Mexico fueled fears increasing trade wars could lead to a
recession.
Washington will impose a 5% tariff from June 10, which would
then 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.
"Mexico would probably like to work something out but I
don't think they even know what to work out," said Tim Ghriskey,
Chief Investment Strategist at Inverness Counsel in New York.
"It's impossible to handicap Trump because something can
come out of left field like this and something can go away just
as quickly."
The Dow Jones Industrial Average .DJI fell 315.97 points,
or 1.26%, to 24,853.91, the S&P 500 .SPX lost 33.82 points, or
1.21%, to 2,755.04 and the Nasdaq Composite .IXIC dropped
97.59 points, or 1.29%, to 7,470.12.
Wall Street's main indexes are down more than 6% in May, as
investors have become increasingly worried about deteriorating
trade talks between the U.S. and China trade war 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 2.145 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. An inversion in the yield curve is seen by some as an
indicator that 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 the two on the plus
side while eight were showing drops of more than 1%.
U.S. carmakers and manufacturers were among the worst hit.
General Motors Co GM.N dropped 4.16% and Ford Motor Co F.N
2.67%, pushing the consumer discretionary .SPLRCD sector 1.43%
lower.
Adding to the downbeat mood was Beijing's warning 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 1.36%.
Data showed U.S. consumer prices increased by the most in 15
months in April, but a cooling in spending pointed to a slowdown
in economic growth that could keep inflation pressures moderate.
The report from the Commerce Department supported the
Federal Reserve's contention that recent low inflation readings
were transitory.
Among other stocks, Gap Inc GPS.N tumbled 10.75%, the most
among S&P 500 companies, after the apparel retailer cut its 2019
profit forecast. Constellation Brands STZ.N , which has substantial brewery
operations in Mexico, slid 6.50%.
Declining issues outnumbered advancing ones 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 4 new 52-week highs and 52 new lows; the
Nasdaq Composite recorded 12 new highs and 210 new lows.
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GRAPHIC-S&P 500 sector performance since May 3 https://tmsnrt.rs/2WC0dic
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