By Caitlin Ostroff and Gunjan Banerji
Global stocks slumped Wednesday as trade talks between the U.S. and China appeared to near an impasse, with President Trump threatening to raise tariffs further.
The Dow Jones Industrial Average slipped 78 points, or 0.3%, in midday trading. The S&P 500 shed 0.2%, dragged down by shares of financials companies. The Nasdaq Composite lost less than 0.1% after hitting a record Tuesday.
Major indexes in Europe and Asia also logged declines as investors grew concerned that relations between the world's two biggest economies may be further strained after the U.S. Senate passed a bill in support of Hong Kong's antigovernment protesters.
The bill would require the U.S. Secretary of State to certify annually that Hong Kong remained sufficiently independent from Beijing to warrant the special status that has helped the city grow into a global financial hub. China's Foreign Ministry said the act was a violation of international law, while Hong Kong officials said foreign legislatures shouldn't interfere with its internal affairs.
"The Chinese aren't very happy about that bill progressing," said Paul Flood, multiasset portfolio manager at Newton Investment Management. "It does make the tariffs discussion more difficult."
A breakdown in the trade talks would derail the White House's plans for a limited "phase one" agreement this year. Investors are also growing jittery that fresh tariffs on Chinese products including smartphones and toys may be put into effect Dec. 15, directly hitting American consumers. Mr. Trump said in a Tuesday cabinet meeting that China needs to make a deal he likes to avoid levies going even higher.
In an interview on CNBC Wednesday, Federal Reserve governor Lael Brainard highlighted that trade uncertainty has been pressuring the economy.
Still, she said she sees the economy continuing to grow next year.
The strength of the U.S. consumer was on display Wednesday as corporate earnings drove swings among shares of individual companies. Shares in Target climbed about 12% -- on track for a fresh record -- after the retail chain posted another quarter of rising sales as the company continued to draw more shoppers online and in its stores.
Lowe's shares jumped about 4% after the home-improvement retailer raised its profit forecast and disclosed plans to shut some Canadian stores.
Yana Barton, an equity portfolio manager at Eaton Vance, said she's optimistic about the stock market's near-term trajectory after major indexes have hit a string of recent records. But, she said "a lot of that really hinges on trade and moving from a strategy of hope, to one that has actual meat around some kind of resolution."
Urban Outfitters dropped 14% after the retailer's third-quarter profit declined.
Meanwhile, the pan-continental Stoxx Europe 600 index fell 0.4%, led by declines in almost every sector.
Investors reached for haven assets, sending the yield on 10-year Treasurys to 1.764% Wednesday, according to Tradeweb, from 1.785% Tuesday. Bond yields across Europe also fell, with the German 10-year bund recently yielding minus 0.368%, from minus 0.337% Tuesday.
Later today, the Federal Reserve will issue its October policy meeting's minutes, which may offer further clues about the direction of future policy.
Write to Caitlin Ostroff at email@example.com and Gunjan Banerji at Gunjan.Banerji@wsj.com