Stocks Tank 800 Points as Bond Market Sounds Recession Warning

Trader Andrew Silverman works on the floor of the New York Stock Exchange on Tuesday. The threat of a recession doesn’t seem so remote anymore, and stocks sank Wednesday after the bond market threw up one of its last remaining warning flags on the economy’s health. (AP Photo/Richard Drew, File)

(CN) – The three major stock indices in the United States plummeted sharply during Wednesday’s trading session, panicking already jittery investors and bolstering some experts’ fears the global economy is faltering.

The Dow Jones Industrial Average dropped 800 points, losing more than 3% of its value. The Nasdaq and S&P 500 did not fare much better, losing 3.03% and 2.93% respectively.

President Donald Trump, who more than any other president in modern history has pointed to the stock market as the economic scoreboard for his stewardship of the economy, lashed out at the Federal Reserve.

“Our problem is with the Fed,” he tweeted Wednesday just after the markets closed. “Raised too much and too fast. Now too slow to cut.”

His tweet refers to interest rates, which he has repeatedly demanded be kept the same or lowered. Federal Reserve Chairman Jerome Powell – appointed by Trump in 2017 – while not a hawk when it comes to raising interest rates, he is certainly not as dovish as his predecessor Janet Yellin, whom Trump replaced.

Trump called the man he appointed “clueless” and said other countries are benefiting from his monetary policy.

However, many economists blame the president’s trade war with China for disrupting supply chains and causing a slowdown in the global economy.

Trump said the trade war is working.

“We are winning, big time, against China,” he said.

Time will tell. On Wednesday, the yield on the 10-year Treasury briefly fell beneath a threshold that has accurately predicted past recessions. The yield curve dropped to its lowest point since 2007, when the worst economic recession of the 21st century struck the United States and the rest of the world.

“CRAZY INVERTED YIELD CURVE!,” tweeted the president.

Many economists don’t believe a recession is imminent, pointing to a series of strong corporate earnings last quarter and a robust labor market with record low unemployment rates.

But cracks in a strong economy and a charging bull market are beginning to appear.

The retail sector has starting shown strains in recent months, as punctuated by a dreadful earnings report from Macy’s on Wednesday.

Meanwhile, the tech sector and banks led the selloff that permeated all sectors.

Investors rushed into U.S. Treasury bonds, giving the president something to brag about even as the Dow reeled into negative territory by the largest margin of 2019.

“Tremendous amounts of money pouring into the United States,” he said. “People want safety!”

But investor flight into bonds is a sign of uneasiness with stocks and the state of the global economy in general.

Germany said Wednesday its economy contracted in the second quarter after global trade wars and trouble in the auto industry took their tolls. Retail spending slowed in China, as did factory output, all signs of stagnation for investors. Eurozone indices were also down more than 2% by the close.

Analysts across the spectrum shared gloomy predictions.

“On the economics dashboard of doom, we have another flashing warning light,” said analysts at ING Economics. “The market is worried about a recession. For now we don’t see it, but there is a chance the fear becomes self-fulfilling.”

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