Stock market plunges amid talk about possible recession

Marco Green
August 17, 2019

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.

The Dow Jones Industrial index ended up 99.97 points, or 0.39%, at 25,579.39, while the S&P 500 index added just 7.00 points, or 0.25% to 2,847.60.

Weak economic data from Germany and China added to signals of a global slowdown.

Earlier Thursday it would take unspecified, "necessary countermeasures" if the Trump administration's planned tariffs of 10% on roughly $150 billion in annual Chinese imports goes into effect September 1. "Retaliation against US technology companies by China as a response to additional USA tariffs could bring great supply-chain disruption".

Consumer spending makes up the bulk of the USA economy, and shoppers have been carrying the economy recently amid worries that businesses will pull back on their spending due to all the uncertainty created by the trade war.

Keeping investors on edge were mixed reports on trade with China's finance ministry saying it would retaliate against the latest USA tariffs.

In Asia, indexes in China and Hong Kong were mostly in positive territory, with the benchmark Shanghai Composite and Hang Seng both posting modest gains. The Dow gained 0.3%, to 25,543.

The S&P 500 rose 11 points, or 0.4%, to 2,851. Shares were also in the red in Taiwan, New Zealand and Australia.

South Korean markets were closed for a holiday.

S&P 500 e-minis were up 14.75 points, or 0.52% and Nasdaq 100 e-minis were up 33 points, or 0.44%. The Nasdaq Composite was up 13.38 points, or 0.17%, at 7,787.31.

Other economies are slowing as the trade war is doing damage to manufacturers around the world.

Tech stocks and banks led the broad sell-off.

Bank stocks extended their losses though with Bank of America and Citigroup lower as long term US bond yields fell below 2% to a record low as investors expect more interest rate cuts by central banks around the world.

US -listed shares of Chinese e-commerce giant Alibaba Group Holding Ltd. advanced, after Thursday morning. -Chinese tariff war has spurred a return of volatility to the stock market in August.

US government bonds have been among the loudest and earliest to cry out warnings about the economy. That causes the market price to rise and yields - the difference between the current price and the payout when the bond matures - to shrink. When investors worry about weaker economic growth and inflation, they tend to pile into Treasurys, which pushes up their prices and in turn pushes down yields.

Central banks around the world are also anxious about weakening economies and on Thursday that should include "substantial and sufficient" bond purchases as well as cuts to the bank's key interest rate.

Those concerns helped drive the yield on the 10-year Treasury to 1.54% Thursday, down from 1.58% late Wednesday and from more than 3% late last year. That yield has been steadily dropping since late past year, when it was above 3%.

Each of the last five times the two-year and 10-year Treasury yields have inverted, a recession has followed.

A separate government report also showed that retail sales last month were stronger than economists expected. Unemployment held steady at 5.2%.

ENERGY: Benchmark U.S. crude lost 9 cents to $55.14 per barrel in electronic trading on the New York Mercantile Exchange.

The 30-year Treasury yield fell to 1.93% from 2.02% and earlier touched a record low, a sign that investors are concerned about how the economy will do in the future. Brent crude, used to price worldwide oils, fell 40 cents to $59.08 per barrel in London.

Other reports by Click Lancashire

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