The shares sank Wednesday after the bond market threw one of its last remaining warning flags on the economy.
The return on the 10-year treasury fell briefly on Wednesday morning below the yield of the two-year treasury, the first time that those returns have been reversed since 2007.
It is rare for short-term yields to rise above longer-term interest rates, and when it happens, market viewers call it & # 39; a reversed yield curve & # 39; and are committed to the possibility that a recession will strike in a year or two.
The Dow Jones Industrial Average dropped no less than 475 points in the first few minutes of trading before part of the losses were compensated.
A five-day image of the Dow shows a sharp decline at the start of trading on Wednesday
Weak economic data around the world also made investors uneasy, who, after selling hopeful signals, went back into selling mode after hopeful signs that the trade war between the US and China might not get worse.
Germany, Europe's largest economy, contracted by 0.1% in the spring from the first three months of the year due to the global trade war and problems in the automotive industry.
Data from China also showed that factory production, retail spending and investment weakened in July for the second largest economy in the world.
& # 39; The bad news for global economies is piling up much faster than most economists thought, so trying to keep up is tiring & # 39 ;, wrote Kevin Giddis, head of fixed income capital markets at Raymond James, in a report.
The S&P 500 fell by 1.7% from 10 a.m. Eastern time and returned all the jumps from the day before after the US delayed some of the tariffs threatened with Chinese imports. The Dow lost 435 points or 1.7% to 25,841 and the Nasdaq composite lost 1.9%.
& # 39; The relief that was inspired by the Trump administration that delayed the rates on some Chinese imports was short-lived – blink and you missed it, & # 39; said Fiona Cincotta, senior market analyst at City Index.
Trader Andrew Silverman works on the floor of the New York Stock Exchange on Tuesday. The threat of a recession doesn't seem that far away anymore and the shares sank Wednesday
Much of the market's focus was on the US yield curve, which has traditionally been one of the more reliable recession indicators.
If all this talk about yield curves sounds familiar, it should. Other parts of the curve are already reversed and start at the end of last year. But every time some viewers warned not to make too much of it.
Academics tend to pay the most attention to the spread between the three-month Treasury and the 10-year Treasury, which reversed in the spring. Traders often pay more attention to the two- and ten-year spread.
Each of the last five times the two-year and 10-year government bond yields are reversed, a recession followed. The average amount of time is around 22 months, according to Giddis of Raymond James.
However, the indicator is not perfect and has given false signals in the past. Some market viewers also say that the yield curve may be a less reliable indicator this time because technical factors can disrupt long-term yields, such as negative bond yields abroad and the interests of the $ 3.8 trillion Treasurys Federal Reserve and other investments on its balance.
Macy & # 39; s fell by 17.9%, the sharpest loss in the S&P 500, after it lowered its profit forecast for the year. Retailer's earnings for the last quarter lagged behind analysts' predictions, as they lowered prices for unsold items.
Energy stocks also fell sharply, hurt by a new fall in the price of crude oil due to concerns that a weakening global economy will drag demand down. National Oilwell Varco lost 5.3% and Schlumberger fell 5.2%. The price of American crude oil fell $ 1.94 or 3.4% to $ 55.16 per barrel. Brent Crude, the international standard, lost $ 1.87 to $ 59.43.
In overseas markets, the DAX of Germany decreased by 2% after the weak German economic data. The CAC 40 in France fell by 1.9% and the FTSE 100 in London lost 1.4%.
In Asia, the Nikkei 225 in Japan increased by 1%, the Kospi in South Korea increased by 0.7% and the Hang Seng in Hong Kong by 0.1%.
Markets are largely in a spin cycle since Trump announced on August 1 that he would levy 10% rates on approximately $ 300 billion in Chinese imports, in addition to the 25% rates that already applied to $ 250 billion in imports.
On Tuesday, the Trump government responds to corporate pressures and the growing fear that a trade war is threatening the American economy, and will drop most of the import levies it was planning to levy on Chinese goods.
Investors are still worried that the trade war between the two largest economies in the world will continue in the US elections in 2020 and cause more economic damage.
Despite all the up and down, the S&P 500 remains within 5% of its record, which was established at the end of July.
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