Investors rattled by President Donald Trump’s latest escalation in his trade war with China drove another round of selling on Wall Street Friday.

The latest losses marked the fifth straight drop for the S&P 500 and the worst week of the year for the market just seven days after the benchmark index hit an all-time high.

The selling picked up a day after Trump shocked markets by promising 10% tariffs on all the Chinese imports that haven’t already been hit with tariffs of 25%. China struck back Friday, saying it will take “necessary countermeasures” if Trump follows through on the new tariffs, which would kick in next month.

The re-escalation in tensions between the world’s largest economies has raised worries about a global recession. Investors have responded by selling stocks and buying gold and government bonds. The heightened tensions have also raised Wall Street’s expectations that the Federal Reserve will be forced to cut interest rates several times to cushion the trade war’s blow.

“The threat of additional tariffs on China and the lack of any progress in the trade negotiations again have made investors more worried that the disruptions which have led the Fed to need to cut rates might in fact escalate faster than the positive impact of rate cuts,” said Kate Warne, chief investment strategist at Edward Jones.

The S&P 500 fell 21.51 points, or 0.7%, to 2,932.05. The Dow Jones Industrial Average dropped 98.41 points, or 0.4%, to 26,485.01. The average had briefly fallen by 334 points.

The Nasdaq composite, which is heavily weighted with technology stocks, lost 107.05 points, or 1.3%, to 8,004.07. Smaller company stocks also fell sharply. The Russell 2000 index gave up 17.11 points, or 1.1%, to 1,533.66.

Despite the weekly loss, the major indexes are all up solidly this year, led by the Nasdaq’s 20.6% gain. The S&P 500 is up nearly 17%.

Technology companies accounted for much of Friday’s sell-off, which lost some strength toward the end of the day. Communications services, consumer discretionary and energy stocks also bore a big share of the losses. Investors shifted money into bonds and stocks traditionally seen as less risky: real estate and utilities.

The government’s monthly jobs report hewed close to economists’ expectations, showing a slowdown in hiring last month. But analysts said it was overshadowed by worries about trade and what the Fed could do about it.

The Fed cut interest rates Wednesday and Chairman Jerome Powell cited “trade policy uncertainty” as a major reason for the move. But he stopped short of promising a long cycle of rate cuts, which left investors disappointed and Trump tweeting that “as usual, Powell let us down.”

The next day came Trump’s tweet on tariffs, and investors now say there’s a 98% probability that the Fed will cut rates again at its next meeting in September. That’s up from a roughly 50% probability Wednesday afternoon.

“We just ratcheted up the trade conflict and now that makes the Fed much more likely to cut,” said Randy Frederick, vice president of trading & derivatives at Charles Schwab.
Traders see low rates as steroids for stocks and other risky investments because they make bonds less attractive in comparison. By making borrowing cheaper, low rates can also help goose the economy.

But the Fed has less ammunition than in the past to cut rates because they’re already historically low. The federal funds rate sits at a range of 2% to 2.25%, compared with the 5.25% perch it sat at before the Great Recession.

Rate cuts alone also may not be able to fully counteract the possible negative repercussions of the trade war.

Trade uncertainty has been weighing on business investment spending, and this latest escalation only adds to it. “It will be important to monitor business sentiment surveys to see whether there is a significant impact on the demand for workers — if businesses stop hiring, this would greatly increase the risk of a recession,” UBS Global Wealth Management’s Chief Investment Officer Mark Haefele said in a report.

The latest round of announced tariffs, which would go into effect Sept. 1, more directly affect U.S. consumers shopping at Wal-Mart or Target. If Trump ramps them up to 25% and keeps them there for four to six months, Morgan Stanley economists say they would expect a recession within nine months.

The concerns about the trade war and Fed have also blotted out what’s been a better-than-expected earnings reporting season. Roughly three quarters of S&P 500 companies have updated investors on how much profit they made from April through June, and earnings for S&P 500 companies are on pace for a drop of 1% from a year ago. While weak, that’s still better than the nearly 3% drop that analysts were earlier forecasting, according to FactSet.

Treasury yields were mixed. The 10-year yield fell to 1.85% from 1.89% late Thursday. It’s close to its lowest point since Trump’s election in 2016. The two-year yield held steady at 1.71%.