The Trump administration announced trade sanctions against China Thursday, and Beijing has said it will defend itself.
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Industrial and technology companies, which depend heavily on foreign trade, took some of the worst losses.
RELATED: President Trump unveils punishing trade actions against China
Boeing, Caterpillar and Microsoft all fell sharply.
Bond prices surged as investors sought cover, sending yields lower. That helped push bank stocks sharply lower too.
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High-dividend stocks like utilities, another safe-play investment, rose.
The S&P 500 index dropped 68 points, or 2.5 percent, to 2,643.
The Dow plunged 723 points, or 2.9 percent, to 23,964. The Nasdaq composite sank 158 points, or 2.2 percent, to 7,181.