Wall Street indexes sank into red territory on Wednesday, reversing strong growth on Tuesday after the bond market sent a wake-up call to the US economy.
The blue-chip index Dow Jones Industrial Average wiped out 849.49 points or 3.05%. The broader S&P 500 fell by 2.93% and the technology Nasdaq Composite fell by 3.02%. The Dow Jones hit a new low for August, wiping out the entire month gains and marking its worst day in 2019.
The CBOE Volatility Index, which measures the implied volatility of S&P 500 options, was up 25.64% to 22.10.
The yields on 10-year US bonds fell Wednesday to below those on 2-year bonds, signaling an economic recession. The investors worried about the state of the economy rushed to long-term safe havens, pushing yields on 30-year bonds to a new record low on Wednesday.
There have been five inversions of the yield curve for 2-year and 10-year bonds since 1978, all of which have been followed by a recession. According to Credit Suisse, the recession averaged 22 months after the inversion of the yield curve.
According to analysts, the recession should be expected 6 to 18 months from today. This would drastically change their medium and long-term prospects for the markets.
US President Donald Trump has blamed the country’s central bank, not the trade war with China, for the recent market turmoil. He called the yield curve “crazy”.
August, as a whole, turned out to be a pretty volatile month for the capital markets. The blue-chip index Dow Jones moved more than 200 points in each direction seven times.
Investors are increasingly worried about the global economic slowdown, as weaker-than-expected data for China is yet another cloud compression over the world’s second-largest economy. Official data released он Wednesday showed that industrial production in China slowed to 4.8% YoY in July, which the slowest growth in 17 years.
Adding to the negative data set are Germany’s GDP figures, which have raised the risk of Europe’s largest economy falling into recession. Eurozone GDP also grew by just 0.2% in the second quarter, slowing down from the reported 0.4% in the first three months of the year.
The United States has decided to postpone the introduction of new customs duties on some Chinese goods, with US President Donald Trump saying it is likely to have a negative impact on holiday shopping ahead of the Christmas season.
Corporate stocks performance
Banking stocks have led the downturns with Bank of America, Citigroup and J.P. Morgan registering declines of 4.69%, 5.28%, and 4.15%, respectively.
Shares of Macy’s Inc tumbled by more than 13% on Wednesday morning, after the department-store retailer reported second-quarter earnings that badly missed expectations after heavy spring discounting failed to clear inventories and it lowered its outlook.
CBS Corp and Viacom both fell sharply after the merger of the two media companies announced Tuesday prompted downgrades from Wall Street analysts.
The stocks of Wayfair Inc fell by 10% proposed a new 750 million USD debt offering after the close of trade Tuesday, after which the home-furnishings retailer’s stock fell.
Shares of Canada Goose Holdings Inc fell by 7.5%, after the luxury apparel maker reported deeper losses during the fiscal first quarter, though it surpassed expectations for revenue growth.
Shares of Cisco Systems Inc declined by 4.00% ahead of the company’s fiscal fourth-quarter earnings report, due to be released after the close.
The top performers on the S&P 500 were Newmont Goldcorp Corp (+0.85%), Ventas Inc (+0.24%) and Evergy Inc (+0.08%), while on the flipside were Macy’s Inc (-13.22%), Kohls Corp (-10.97%) and Nordstrom Inc (-10.65%).