US stocks fell sharply on Wednesday, with all the three major indexes crashing about 3 percent, as recession fears gripped the market after the US Treasury yield curve temporarily inverted for the first time in 12 years.
The Dow Jones Industrial Average tumbled 800 points after 2-year Treasury yields surpassed those of 10-year bonds, a move deemed a classic recession signal, Reuters reports.
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,” Chuck Carlson, chief executive of Horizon Investment Services, told Reuters. “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 added. “My guess is we’re probably in for this until after Labor Day.”
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, Reuters noted.
The US yield curve has inverted before every recession in the past 50 years.
The CBOE volatility index, a gauge of investor anxiety, jumped 4.58 points to 22.10.
The Dow closed down 3.05 percent at 25,479.42 points, while the S&P 500 index fell 2.93 percent to 2,840.6 and the Nasdaq Composite dropped 3.02 percent to 7,773.94.
Volume on US exchanges was 8.68 billion shares, compared with the 7.47 billion average over the last 20 trading days.
Over 300 of the S&P 500’s components are down 10 percent or more from their 52-week highs, according to Refinitiv data.
More than 180 of those stocks have fallen more than 20 percent 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 percent or more.
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