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* Major indexes down about 6.5% in May
* Trade-sensitive industrials drop; U.S. automakers tumble
* U.S. Treasury yield curve inversion deepens
* Ten of the 11 major S&P sectors trading lower
* Indexes fall: Dow 1%, S&P 0.94%, Nasdaq 0.97% (Updates prices, adds comments)
By Shreyashi Sanyal
May 31 (Reuters) - Wall Street’s main indexes fell sharply on Friday, hit by fears that President Donald Trump’s shock threat of tariffs on Mexico could prove the trigger that pushes the United States into 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 later on Thursday. Mexican President Andres Manuel Lopez Obrador said he would respond with “great prudence”.
“This comes at a time when companies have to be looking at alternatives to the Chinese supply chain. Many thought Mexico would be an alternative, but now that looks in jeopardy,” said Cliff Hodge, director of investments at Cornerstone Wealth.
“The risk is that these tariffs, along with those imposed on China, push an already soft business cycle into a full-blown recession.”
Wall Street’s main indexes are down about 6.5% in May, their worst performance this year and the trigger for a flood of money into the bond market that has encouraged expectations of a U.S. recession.
U.S. Treasury yields fell to new multi-month lows, while the yield curve, as measured in the gap between three-month and 10-year bond yields, remained heavily inverted. An inversion in the yield curve is seen by some as an indicator that a recession is likely in one to two years.
The broader financial sector was under pressure, falling 0.95%, while bank stocks tumbled 1.03%.
U.S. carmakers and manufacturers were among the worst hit. General Motors Co dropped 4.2% and Ford Motor Co 2.9%, pushing the consumer discretionary sector 1.17% lower.
At 11:03 a.m. ET the Dow Jones Industrial Average was down 251.00 points, or 1.00%, at 24,918.88, the S&P 500 was down 26.26 points, or 0.94%, at 2,762.60 and the Nasdaq Composite was down 73.70 points, or 0.97%, at 7,494.02.
Adding to risks 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 declined 1.1%, while FAANG stocks - Facebook Inc, Apple Inc, Alphabet Inc, Netflix Inc and Amazon.com Inc - declined between 0.8% and 2.5%.
Among the 11 major sectors, only the defensive real estate index was up 0.6%.
Data showed U.S. consumer prices increased in April, which could support the Federal Reserve’s contention that recent low inflation readings were transitory and allow the central bank to keep interest rates unchanged for a while.
Among other stocks, Gap Inc tumbled 11.1%, the most among S&P 500 companies, after the apparel retailer cut its 2019 profit forecast.
Constellation Brands, which has substantial brewery operations in Mexico, slid 6.6%.
Declining issues outnumbered advancers for a 2.76-to-1 ratio on the NYSE and for a 3.06-to-1 ratio on the Nasdaq.
The S&P index recorded three new 52-week highs and 52 new lows, while the Nasdaq recorded eight new highs and 177 new lows. (Reporting by Shreyashi Sanyal and Medha Singh in Bengaluru; Editing by Anil D’Silva)