US stocks slide 3% as recession fears grip markets

New York — Wall Street sold off sharply on Wednesday as recession fears gripped the market after the US Treasury yield curve temporarily inverted for the first time in 12 years.

All three major US indexes closed down about 3%, with the blue-chip Dow posting its biggest one-day point drop since October after 2-year Treasury yields surpassed those of 10-year bonds, which is considered a classic recession signal.

The Dow Jones Industrial Average fell 800.49 points, or 3.05%, to 25,479.42, the S&P 500 lost 85.72 points, or 2.93%, to 2,840.6, and the Nasdaq Composite dropped 242.42 points, or 3.02%, to 7,773.94.

Over 300 of the S&P 500’s components are down 10% or more from their 52-week highs, according to Refinitiv data. More than 180 of those stocks have fallen more than 20% from their 52-week highs, putting them in bear market territory.

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 3% or more.

Interest rate-sensitive banks tumbled 4.3%.

President Donald Trump once again blamed the Fed for the economic woes and the yield curve inversion, saying the US central bank is a bigger threat than China and is “clueless”.

Dire economic data from China and Germany suggested a faltering global economy, stricken by the increasingly belligerent US-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 said.

Wednesday was the first time that yields for 2-year and 10-year Treasuries had inverted since June 2007, months before the onset of the great recession, which crippled markets for years.

The US 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.

Macy’s shares plunged 13.2% after the department store operator missed quarterly profit estimates and cut its full-year earnings estimates.

Rival department store operators Nordstrom   and Kohls   slid 10.6% and 11%, respectively.