NEW YORK (Reuters) – U.S. stocks ended down sharply and near the day’s lows on Tuesday as news that the United States has imposed visa restrictions on Chinese officials overshadowed comments by Federal Reserve Chairman Jerome Powell suggesting openness to further interest rate cuts.
Stocks cut losses following Powell’s remarks but quickly reversed course to fall further in late trading after the U.S. State Department said it has imposed visa restrictions on Chinese government and Communist Party officials it believes responsible for the detention or abuse of Muslim minorities in Xinjiang province.
The move stoked tensions ahead of high-level trade talks in Washington this week and added to the day’s bearishness. Earlier, the U.S. government widened its trade blacklist to include some of China’s top artificial intelligence start-ups.
“The market was down because the headlines were negative coming into the U.S.-China negotiations. With Powell not changing the narrative, it makes sense that on further signs of deterioration in trade that the market would sell off,” said Keith Lerner, chief market strategist at SunTrust Advisory Services in Atlanta.
Losses were broad-based, led by a 2% drop in the interest-rate sensitive S&P 500 financial index .SPSY, while the Philadelphia Semiconductor index .SOX dropped 3.1%.
A Bloomberg report said that Washington was moving ahead with efforts to limit capital flows to China, while a South China Morning Post report said China had toned down expectations ahead of the talks in Washington.
In his remarks, Powell also said the time has come to allow the Fed’s asset holdings to begin to expand again, and that the Fed would “soon announce measures to add to the supply of reserves over time.”
The Dow Jones Industrial Average .DJI fell 313.98 points, or 1.19%, to 26,164.04, the S&P 500 .SPX lost 45.73 points, or 1.56%, to 2,893.06 and the Nasdaq Composite .IXIC dropped 132.52 points, or 1.67%, to 7,823.78.
“The overall tone from the Fed is showing a little more concern,” said Willie Delwiche, investment strategist at Baird in Milwaukee.
Market expectations have increased that the Fed will cut interest rates by a quarter percentage point in October, according to CME Group’s FedWatch tool.
Those bets were bolstered on Tuesday by data that showed U.S. producer prices unexpectedly fell in September.
Declining issues outnumbered advancing ones on the NYSE by a 3.01-to-1 ratio; on Nasdaq, a 3.42-to-1 ratio favored decliners.
The S&P 500 posted 6 new 52-week highs and 22 new lows; the Nasdaq Composite recorded 11 new highs and 148 new lows.
Volume on U.S. exchanges was 6.74 billion shares, compared with the 7.2 billion average for the full session over the last 20 trading days.
Additional reporting by Lewis Krauskopf and April Joyner and Lewis in New York, Shreyashi Sanyal and Arjun Panchadar in Bengaluru; Editing by Sriraj Kalluvila and Dan Grebler