(Friday market close) Wall Street faced a barrage of bad news on Friday as renewed U.S.-China trade war fears collided with the ongoing political turmoil in Washington, leading the S&P 500^® (SPX) to sink more than 2.7% as Treasury yields and the dollar slipped in a broad flight to safety.

"Trade tension thwarted what would have been an up week for both the S&P and Nasdaq," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.  "Whether today’s sell-off is enough to stymie bullish momentum, or embolden dip buying behavior remains to be seen."

The Dow Jones Industrial Average^® ($DJI) lost 878.82 points (–1.90%) to 45,479.60, the SPX dropped 182.61 points (–2.71%) to 6,552.50, and the Nasdaq Composite^® ($COMP) fell 820.19 points (–3.56%) to 22,204.43.

All three major U.S. market indexes started the day in the green before investors retreated after President Donald Trump threatened to ratchet up tariffs on Chinese imports in a Truth Social post. The President said his goal is to counter new export controls China has enacted on rare earth metals, which are critical inputs for many industries, including defense and tech.

"No threats have yet been implemented, but there would be mounting risks were a truce not reached, including the possibility of squashed hope of U.S. soybean sales to China and risks to U.S. supply chains from China's restriction of rare earths," said Liz Ann Sonders, chief investment strategist at Schwab. "Clearly, the risk of escalation is top of mind."

The CBOE Volatility Index^®, or VIX, spiked 34% in the wake of Trump's tariff threat, rising above 22 after mostly remaining in a range between 14 and 16 for months.

Trump also warned on Friday that he may cancel an upcoming meeting with Chinese President Xi Jinping. The two leaders were scheduled to meet at an Asia-Pacific Economic Cooperation, or APEC, conference in South Korea in two weeks.

Adding to the market's woes, with the government shutdown extending past 10 days, Office of Budget and Management chief Russell Vought announced on X that federal layoffs have begun. More than 1.3 million workers have already been furloughed amid the shutdown.

"Given stretched valuations and signs of frothy investor sentiment, there is less cushion for the impact of negative headlines," Sonders said.

Investors looked to gold, which has been on a tear recently, as a safe haven during Friday's turbulent trading. The precious metal rose more than 1.4% to over $4,000. In a similar flight to safety after President Trump's comments on China, investors flocked to Treasurys on Friday, leading yields to drop across most of the curve. The 2-year Treasury note yield fell seven basis points to 3.53%, while the 10-year treasury note yield sank nine basis points to 4.05% and the 30-year Treasury bond yield plunged nine basis points to 4.64%.

The price of oil also fell on Friday due to trade war concerns, nearing lows not seen since after President Trump's "Liberation Day" tariff announcement in April. West Texas Intermediate, or WTI, crude oil futures sank more than 4.26% to $58.89.

Cryptocurrencies also fell Friday, with bitcoin (/BTC) off roughly 4% as of late Friday afternoon, well off its recent record highs above $127,000.

"There's nothing specific to crypto," said Jim Ferraioli, cryptocurrency strategist at Schwab. "The market is selling off on tariff announcements and crypto is going down with it. It's just a risk-off day."

Economic data Friday didn't help assuage investors' jitters. The University of Michigan's preliminary October consumer sentiment fell slightly from 55.1 in September to 55.0 this month. The reading came in above analysts' consensus expectations for 54.5, according to Briefing.com, but consumer sentiment remains near historic lows. On a more positive note, consumers' year-ahead inflation expectations inched down from 4.7% last month to 4.6% this month, while long-run inflation expectations remained at 3.7%.

Looking ahead, big bank earnings loom Tuesday morning before the open, potentially shifting market attention back to corporate news from the recent trade and shutdown focus. In its final estimate before earnings season began, FactSet pegged S&P 500 third quarter year-over-year earnings growth at 8%, unchanged from its prior estimate and down from around 12% in the second quarter.

When banks report, investors will look for updates on trading trends, net-interest income, loan demand, and the impact of cryptocurrency on business. Anything bank leaders say about the economy and trade could also generate headlines.

Other earnings to watch next week include pharma giant Johnson & Johnson (JNJ) on Tuesday and chip industry supplier ASML (ASML) on Wednesday. United Airlines (UAL) is another major report after Delta Air Lines (DAL) got travel earnings off to a robust start earlier this week.

ASML looks like it could be a critical earnings report to monitor considering its role in the U.S. and China semiconductor standoff, Briefing.com noted Friday. And Taiwan Semiconductor Manufacturing (TSM) next Thursday could have heavy implications for the same reason.

Data next week is uncertain, given the shutdown. The Bureau of Labor Statistics may be calling in furloughed workers to try and get September inflation reports out to the market, Bloomberg reported Thursday. But that's not guaranteed and may not come at the scheduled time Wednesday. Investors looking for non-governmental economic updates might want to focus on Wednesday's Empire State Manufacturing Index and Thursday's Philadelphia Fed Index. These are regional indicators, not national.

Next Tuesday, amid all the other news, features a speech by Fed Chairman Jerome Powell, "The Economic Outlook and Monetary Policy." Judging from the title, this could be a speech that gets far more attention than remarks he made this week that didn't touch on policy. The coming week is packed with Fed speakers other than Powell after many this week said they see the case for more rate cuts.

Friday's market pullback was broad-based, with 10 out of 11 S&P 500 sectors in the red. Only the traditionally defensive consumer staples sector managed to post gains, emphasizing the risk-off retreat among investors.

On a technical basis, the S&P 500 index plunged below its 20-day moving average Friday, a trendline that had been solid support for months. It now hovers just above its 50-day moving average near 6,525. It hasn't closed below that moving average in five months. Multiple closes below either of these moving averages—if that happens—could convey a shift in near-term sentiment.