Uncertainty over the long-running trade war has fueled volatility in the market and stoked worries that the impact of tariffs and other tactics employed by the countries against each other is hampering U.S. economic and corporate profit growth.
The possibility that the U.S. is weighing another way of applying pressure on China dampened investors' already cautious optimism that the world's two biggest economies might make progress as their representatives resume negotiations next month.
"Here we are, just two weeks out, and now we're doing things to sort of ruffle feathers again," said Randy Frederick, vice president of trading & derivatives at Charles Schwab. "That kind of spooked the market."
The S&P 500 index fell 15.83 points, or 0.5%, to 2,961.79. The benchmark index finished the week with a 1% loss. Even so, it remains 2.1% below its all-time high set in July. The Dow Jones Industrial Average dropped 70.87 points, or 0.3%, to 26,820.25. The Nasdaq, which is heavily weighted with technology stocks, lost 91.03 points, or 1.1%, to 7,939.63.
Investors also shifted money out of smaller company stocks, which pulled the Russell 2000 index down 12.85 points, or 0.8%, to 1,520.48. Bond prices were little changed. The yield on the 10-year Treasury note held at 1.68%.
The major U.S. stock indexes were holding on to modest gains early Friday even after investors sized up mixed economic data on consumer spending and durable goods orders. The Commerce Department said that spending by U.S. consumers rose just 0.1% in August, the smallest gain in six months, even as incomes increased at a solid pace. A separate report showed orders to U.S. factories for big-ticket manufactured goods rose slightly in August, though a key sector that tracks business investment plans declined.
The economic reports followed data on Thursday indicating that the U.S. economy grew at a modest 2% annual rate in the second quarter, a sharply slower pace than earlier the year. The market mostly moved sideways as investors digested the economic data, but it gave up those modest gains by midday as traders learned the U.S. is considering limiting U.S. investments in China.
Wall Street has been very sensitive to the ups and downs in the trade dispute. Stocks rose Wednesday after President Donald Trump told reporters that China wants "to make a deal very badly," adding that "it could happen sooner than you think."
That optimism faded from the markets Friday as investors considered the implications of the U.S. weighing more tough measures only a couple of weeks away from new trade talks. "We go right back to the same old negotiating tactics," Frederick said. "It's negotiating with a stick, rather than a carrot."
Negotiators are due to meet next month in Washington for a 13th round of talks aimed at ending the dispute over trade and technology that threatens to tip the global economy into recession. Both sides have taken conciliatory steps this month ahead of the trade talks, moves that stoked optimism among investors. Chinese importers have set deals to buy American soybeans and pork. And the Trump administration postponed a planned Oct. 1 tariff hike on Chinese imports to Oct. 15.
Technology stocks, which are particularly sensitive to swings in the trade conflict, accounted for much of the selling Friday. Microsoft slid 1.3% and Adobe dropped 2.2%. Micron Technology led the sector's slide after the chipmaker issued a weak profit forecast and a sales warning, citing the trade war. The stock slumped 11.1%, the biggest decliner in the S&P 500.
Communications stocks also took heavy losses. Twitter lost 2.6% and Activision Blizzard fell 3.5%. The market has been in a slump all week as investors pull back amid trade war worries, reports of sluggish economic growth and an impeachment inquiry into President Trump.
The tech-heavy Nasdaq bore the brunt of the selling. It finished the week with a 2.2% loss. Smaller company stocks had a particularly rough week. The Russell 2000 ended the week down 2.5%. For some stocks, this week has been their worst of the year. Facebook is off 6.8% for the week after media reports suggesting the Department of Justice is considering opening an antitrust investigation into the social media company.
Financial stocks bucked the broader market slide Friday, with Wells Fargo leading the way. The bank's shares climbed 3.8% after it named its third CEO in as many years. Charles Scharf, currently CEO of Bank of New York Mellon, will take over from C. Allen Parker. The company has been involved in a series of scandals since 2016 with the uncovering of millions of fake checking accounts its employees opened to meet sales quotas.
LATAM Airlines surged 31.1% after Delta Air Lines invested $1.9 billion in the airline, which focuses on Latin American routes. The investment gives Delta a 20% stake in the company. Benchmark crude oil fell 50 cents to settle at $55.91 a barrel. Brent crude oil, the international standard, dropped 83 cents to close at $61.91 a barrel. Wholesale gasoline fell 1 penny to $1.65 per gallon. Heating oil declined 2 cents to $1.94 per gallon. Natural gas fell 1 cent to $2.40 per 1,000 cubic feet.
Gold fell $8.80 to $1,499.10 per ounce, silver fell 26 cents to $17.55 per ounce and copper rose 2 cents to $2.58 per pound. The dollar was unchanged at 107.81 Japanese yen from Thursday. The euro strengthened to $1.0941 from $1.0928.
Major stock indexes in Europe finished broadly higher.
AP Business Writer Damian J. Troise contributed.