President Donald Trump doubled tariffs on aluminium and steel imports from Turkey, deepening the currency’s losses and raising concerns that the crisis could weigh on other economies.
Peter Cecchini, chief market strategist at Cantor Fitzgerald in New York, said: “Problems in emerging markets are more important than ever because of the global growth engine that emerging markets have become.
“This will eventually matter greatly to US markets.”
Investors fled to safe-haven assets, with the dollar rising to a 13-month high and US bond yields slipping to a three-week low.
Ten of the 11 major S&P sectors were lower, with bank stocks taking the biggest hit.
Michael Antonelli, managing director of institutional sales trading at Robert W. Baird, said: “Banks are leverage plays on the global economy. Anytime there’s a sniff of contagion they will be weak.”
JPMorgan, Wells Fargo and Bank of America fell more than 1 percent, weighing the most on the benchmark S&P 500.
The European central Bank expressed concern about Turkey who elected president Erdogan in a snap-election earlier this year and critics fear he is starting a clamp down on the country’s central bank.
Alec Young, managing director of global markets research at FTSE Russell, said: “Turkey’s currency volatility has recently accelerated and now gotten to the point where it’s beginning to impact global markets as investors worry about European banking exposure.”
Quincy Krosby, chief market strategist at Prudential Financial, said: “This is a classic, instinctive reaction in the market.
“Stocks are down while gold and Treasuries are getting a bid.
“The currency issue in emerging markets, in Turkey, is nothing new. This is just exacerbated.
“Historically, you’ve seen central banks act to ease these types of situations. The goal for them is to minimise collateral damage.”
JPMorgan, Wells Fargo and Bank of America fell more than one percent, weighing the most on the benchmark S&P 500.
S&P technology sector’s 0.42 percent fall was led by chipmakers.
Intel dropped 2.6 percent after Goldman Sachs downgraded the stock to “sell”. Micron also fell 1.1 percent.
Microchip’s shares fell 10.5 percent, the biggest decliner on the S&P, after it forecast disappointing second-quarter revenue.
Data on Friday showed US consumer prices rose in July and the underlying trend continued to strengthen, pointing to a steady increase in inflation pressures.
The S&P index recorded four new 52-week highs and seven new lows, while the Nasdaq recorded 33 new highs and 45 new lows.