Markets Tumble As Recession Signs Spook Investors
There have been big falls on Wall Street as recession fears gripped the market.
All three major U.S. indexes closed down about three percent, with the blue-chip Dow posting its biggest one-day point drop since October after two-year Treasury yields surpassed those of 10-year bonds, which is considered a classic recession signal.
Dire economic data from China and Germany suggested a faltering global economy, stricken by the increasingly belligerent U.S.-China trade war, Brexit woes and geopolitical tensions.
Germany reported a contraction in second-quarter gross domestic product, and China’s industrial growth in July hit a 17-year low.
“It was all negative and not much positive today,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana. “We’re outside of the earnings season and markets are being batted around by news.”
“It’s a reactionary market right now and probably will continue to be,” Carlson added. “My guess is we’re probably in for this until after Labor Day.”
Wednesday was the first time that yields for two-year and 10-year Treasuries had inverted since June 2007, months before the onset of the great recession, which crippled markets for years.
The U.S. yield curve has inverted before every recession in the past 50 years.
“It could be different this time,” Carlson said. “When you’ve got $15 trillion in global government debt at negative yields, that’s a new animal.
“Even if it is accurate in foreshadowing a recession, that doesn’t mean it’s coming tomorrow,” he added.
The CBOE volatility index, a gauge of investor anxiety, jumped 4.58 points to 22.10.
The Dow Jones Industrial Average fell 800.49 points, or 3.05 percent, to 25,479.42, the S&P 500 lost 85.72 points, or 2.93 percent, to 2,840.6, and the Nasdaq Composite dropped 242.42 points, or 3.02 percent, to 7,773.94.
All of the 11 major sectors in the S&P 500 closed in negative territory, with energy, financials, materials, consumer discretionary and communications services all falling three percent or more.