Wall Street stumbled on Wednesday as investors fled equities for safe-haven assets, seeking shelter amid gathering signs that a recession could be on the horizon.
All three major US indices were sharply lower as short- and long-dated Treasury yields inverted for the first time in 12 years, a potential signal of imminent recession.
Elsewhere, ominous indicators suggested a faltering global economy, hobbled by the intensifying US-China trade war, Brexit jitters and geopolitical concerns. Germany reported a contraction in second-quarter GDP, and China’s industrial growth in July hit a 17-year low.
“Every central bank around the world is trying to prop up economies and every politician around the world is trying to destroy economies,” said Oliver Pursche, chief market strategist at Bruderman Asset Management in New York. “What’s happening in Hong Kong, what’s happening with Brexit and the trade war, it’s all a mess.”
Yields for 2-year and 10-year Treasuries inverted for the first time since June 2007, months before the onset of the great recession, which crippled markets for years.
Such a yield inversion is held by many as a traditional harbinger of recession.
“When you’re in an ultra-low interest rate environment as we’ve been, you’ve got to ask if the old metrics still apply,” Pursche added. “My guess is yes.”
Spot gold prices rebounded, rising more than 1 per cent as market participants fled stocks for the precious metal.
At closing, the Dow Jones Industrial Average had fallen 800.49 points, or 3 per cent, to 25,479.42, the S&P 500 fell 85.72 points, or 2.9 per cent, to 2,840.60, and the Nasdaq Composite dropped 242.42 points, or 3 per cent, to 7,773.94.
All of the 11 major sectors in the S&P 500 were down, with energy and financial suffering the largest percentage loss.
The second-quarter earnings season approaches the finish line, with 454 of the companies in the S&P 500 having posted results. Of those, 73.1 per cent beat Street estimates, according to Refinitiv data.
Analysts see S&P 500 second-quarter earnings growth of 2.8 per cent year on year, per Refinitiv.