New York CNN Business  — 

Wall Street’s trade war anxiety isn’t going away.

The Dow dropped 391 points, or 1.5%, on Monday afternoon. The S&P 500 and Nasdaq lost 1.2% apiece. Treasury bond yields once again fell sharply as investors piled into safe assets.

The turmoil comes as investors brace for the US-China trade war to deal more damage to the global economy. The risk is that the tit-for-tat tariff battle between the world’s two largest economies could turn the economic slowdown into a recession.

“The ongoing trade dispute between the US and China appears to have escalated into a full-blown economic conflict,” David Kostin, chief US equity strategist at Goldman Sachs, wrote in a note to clients.

China-sensitive stocks including Caterpillar (CAT), Deere (DE) and Boeing (BA) all declined more than 1%.

Goldman Sachs raised its estimate of how much the trade war will hurt the economy. The firm now expects fourth-quarter US growth to slow to 1.8%, compared with 2% previously.

Trade tensions spiked earlier this month after President Donald Trump vowed to impose a 10% tariff on $300 billion of US imports from China. Beijing allowed its currency to sharply lose value, raising fears of a currency war.

Investor sentiment was further dented on Monday by rising concerns about the pro-democracy protests in Hong Kong. Hundreds of flights to and from Hong Kong were canceled on Monday as protests forced the shutdown of the city’s airport.

Beijing condemned the protests as “terrorism” and state media published a video showing Chinese military vehicles on Hong Kong’s border.

The iShares MSCI Hong Kong ETF (EWH) tumbled 3% on Monday, leaving the fund down 13% so far this quarter.

Argentina’s market also stumbled on political fears. The peso plunged more than 15% against the US dollar on worries that populists will replace Argentina’s business-friendly government.

Nervous investors continue to seek shelter in safe havens. Gold climbed back above $1,500 an ounce on Monday.

The rush into ultra-safe government bonds have caused Treasury yields to collapse. The 10-year Treasury rate tumbled below 1.7% on Monday, a sharp slide from 3.2% last fall. The 30-year Treasury yield is nearing all-time lows.

The plunge in bond yields will further pressure lending profits at banks, which make money on the difference between short and long-term rates. Citigroup (C), Morgan Stanley (MS) and Goldman Sachs (GS) fell about 3% apiece.

US stocks declined last week for the second week in a row. The S&P 500 is now sitting about 5% below the all-time highs set in late July prior to the outbreak in trade tensions.

“The bear is alive and kicking,” Morgan Stanley equity strategists led by Michael Wilson wrote in a note to clients on Monday.

Financial markets have performed poorly even after the Federal Reserve granted investors’ wishes by lowering interest rates in late July, the first rate cut in nearly 11 years.

Rather than the trade war, Wilson argued investors are reacting negatively to the realization that the Fed has gone from very hawkish to very dovish due to the darkening economic environment.

“The Fed has reversed its position over the past 9 months because the outlook for the economy, both here and abroad, deteriorated significantly,” he wrote.