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Stocks Slide as Bond Market Signals Rising Concern About Growth Stocks Slide as Bond Market Signals Rising Concern About Growth
(32 minutes later)
Stocks dropped on Wednesday, as the bond market signaled rising concern about the economy and data from Germany showed the country could be veering toward a recession.Stocks dropped on Wednesday, as the bond market signaled rising concern about the economy and data from Germany showed the country could be veering toward a recession.
The German government reported that its economy shrank in the three months ending in June. The largest economy in the eurozone, Germany has become particularly vulnerable to the trade war playing out between the United States and China because of its dependence on manufacturing and exports. A second quarter of decline would mean Germany is technically in a recession. On Wall Street, the stock market opened lower, with the S&P 500 falling more than 1 percent, led by a steep drop in the energy sector. Retail shares also fell sharply as did shares of large technology companies. The Nasdaq was down 1.8 percent shortly after the start of trading in New York.
Investors were also closely watching moves in the bond market, where yields on long-term United States securities continued to plumb lows not seen in recent years. The yield on the benchmark 10-year Treasury note briefly fell below 1.60 percent in early trading, a level it last reached in late 2016.
The drop in long-term yields pushed the yield on the 10-year note below that of the two-year Treasury note, an unusual situation known as an inversion of the yield curve. Yield-curve inversions are considered one of the most-reliable leading indicators of recession in the United States, having preceded every economic decline in the past 60 years.
The phenomenon, when yields on long-term bonds fall below those on short-term bonds, had already occurred with some Treasury securities this year. But the inversion between two-year and 10-year notes on Wednesday, something that last occurred 2007 as the American economy began to sputter into a severe recession, seemed to worry investors anew.
Downbeat economic data from other corners of the global economy added to the day’s ominous mood.
The German government reported that the country’s economy shrank in the three months that ended in June. The German economy, the eurozone’s largest, has been particularly vulnerable to the trade war between the United States and China because of Germany’s dependence on manufacturing and exports. A second consecutive quarter of decline would mean Germany was technically in a recession.
[Read more about how Germany is heading toward a recession.][Read more about how Germany is heading toward a recession.]
The news sent shares in major European markets lower. The main stock indexes in Frankfurt, Paris and London were all down 1 percent or more in midday trading. The S&P 500 dropped more than 1.5 percent in early trading. In China, a variety of macroeconomic indicators published overnight showed that the world’s second- largest economy continues to lose steam as the trade war drags on. Chinese industrial production slowed more than expected, falling to 4.8 percent n July, the lowest level since 2002.
Yields on United States government bonds also fell, signaling downgraded expectations for growth. The bond yields, which move lower as prices rise, have been tumbling ever since the trade dispute suddenly escalated last month and investors turned to the government bond market in search of a safe haven.
On Wednesday, the decline left yields on 10-year bonds below those on two-year bonds, in what’s known as an inversion of the yield curve. The yield curve is the bond market’s most reliable indicator of a recession, having preceded every economic decline in the United States of the last 60 years.
[Read more about the intensifying recession warning in the bond market.][Read more about the intensifying recession warning in the bond market.]