By Avantika Chilkoti and Michael Wursthorn 

Shares of technology companies skidded after some U.S. businesses moved to comply with restrictions against Huawei Technologies, setting up major stock indexes for another tough week amid the escalating trade spat.

Investors retreated from Google parent Alphabet, Qualcomm and other technology stocks following reports that those businesses were cutting Huawei's access to their technology after the Trump administration put Huawei on a trade blacklist. The moves prompted concerns that the latest actions could further inflame trade tensions between the world's two largest economies.

Most concerning is China's potential to retaliate against U.S. tech companies that have significant exposure to the country, some investors said. The S&P 500 ended up falling 19.30 points, or 0.7%, to 2840.23, potentially setting the broad index up for its third straight weekly loss.

Chip makers and hardware manufacturers were among the hardest hit, with Apple, Alphabet and Qualcomm logging significant losses.

"With the news around the U.S. and Huawei taking a turn for the worse, it seems that the trade war is increasingly showing signs of becoming a tech war," said Seema Shah, a senior global investment strategist at Principal Global Investors. "The further this trend develops, the bigger the collateral damage will be, particularly in Asia and the U.S."

The Dow Jones Industrial Average and Nasdaq Composite followed the S&P 500 lower. The blue-chip index shed 84.10 points, or 0.3%, to 25679.90, while the tech-heavy Nasdaq declined 113.91 points, or 1.5%, to 7702.38.

Monday's losses extended the recent pain tech stocks have experienced since trade tensions resurfaced earlier this month. Those stocks fell by an additional 1.7% on Monday, extending tech's losses for May to 6.1% -- the second biggest loss month to date out of the 11 major S&P 500 sectors, behind shares of materials companies.

Those losses could worsen, analysts warn, as the trade dispute continues to roil the market. There is the potential for a rebuttal from China against U.S. tech companies, many of which, like Apple, have significant exposure to China. The latest round of tariffs are also expected to put additional pressure on profit margins. Tech stocks are the best-performing sector of the year, and some investors say they have been trimming those holdings to lock in gains in case market conditions deteriorate.

"The recent action against Huawei confirms our view that the relationship between Washington and Beijing will remain tense," analysts at UBS Group AG's global wealth-management arm wrote in a note to clients. "The growing rivalry between the world's two largest economies will simmer in the background, with repercussions on business and investments."

Shares of Alphabet slid $24.12, or 2.1%, to $1,144.66 after it was reported that the company will restrict Huawei's access to certain Android features. Qualcomm, which fell by $4.88, or 6%, to $76.62, suspended shipments of its chips to Huawei.

Shares of Apple declined $5.91, or 3.1%, to $183.09 after HSBC cut the iPhone maker's price target, pointing to its exposure to the trade conflict.

Tesla fell to its lowest level in a year after analysts cited concerns about the electric-car maker's growth prospects and the underlying demand for its Model 3 vehicle. Shares fell $5.67, or 2.7%, to $205.36. Including Monday's declines, the S&P 500 has given up more than 3% this month since the U.S.-China trade tensions re-emerged.

Investors are now positioning themselves for more bouts of volatility, a sign that many expect the market's erratic swings to continue. Assets in exchange-traded funds that tend to profit when volatility rises hit a record $3.1 billion in May, according to FactSet data.

Write to Avantika Chilkoti at Avantika.Chilkoti@wsj.com and Michael Wursthorn at Michael.Wursthorn@wsj.com

 

(END) Dow Jones Newswires

May 20, 2019 18:16 ET (22:16 GMT)

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