US stocks slipped on Wednesday, as investors reeling from rising business tensions fled riskier assets for perceived safer havens, leading the bond market to price in a slide into recession.
US Treasury yields took another dramatic drop and the premium on three-month invoice rates above 10-year note yields used to be at its most elevated levels since March 2007. This so-called inversion between the two maturities has preceded each US recession previously 50 years.
The drop in yields also reflected a hop in expectations that the Federal Reserve would cut key borrowing costs three more times by year-end, with markets fully pricing in a discount in September.
“If the USA economy is strong enough to resist the next phase of a business war is giving people concern presently,” said Mike Loewengart, vice-president of investment strategy at E*Commerce Financial in New York.
“Then we add in what’s at the disposal of the USA Federal Reserve, some begin to question if that tool chest could be depleted much too quicker before we have even encountered a recession.”
The central banks in New Zealand, India and Thailand on Wednesday cut rates amid fears that the business war could hit global growth.
The concerns remerged after President Donald Trump final week threatened to slap 10% levies on the remainder of $300 billion of Chinese imports.
The interest-rate touchy S&P 500 banks sub-sector slipped 3.26%. The broader financial index dropped 2.21%, the most among nine of the 11 major S&P sectors trading lower.
The energy sector shed 1.65% as oil prices slid more than 3% on demand concerns.
At 11:08 a.m. ET, the Dow Jones Industrial Average used to be down 283.91 points, or 1.09%, at 25,745.61, easing from a close 600 points drop.
The S&P 500 used to be down 20.19 points, or 0.70%, at 2,861.58 while the Nasdaq Composite used to be down 24.61 points, or 0.31%, at 7,808.66.
China’s offshore yuan dipped on Wednesday with the currency markets still on edge after China’s central bank set its official reference rate at an 11-year low.
A partial recovery in the yuan on Tuesday and a softer rhetoric from the White House on business had helped the S&P 500 and the Nasdaq break a six-day losing streak.
With the second-quarter earnings season winding down, approximately 73% of the 426 S&P 500 companies that have reported results so far have topped earnings estimates.
Walt Disney Co dropped 4.7% after its quarterly earnings missed analysts’ forecast as the company invested heavily in its streaming platform and began folding in assets purchased from Twenty-First Century Fox.
CVS Health Corp rose 6.1% after the drugstore chain posted profit above estimates, boosted by strong sales in the Aetna health insurance trade it acquired final year and raised its full-year earnings forecast.
Declining issues outnumbered advancers for a 2.31-to-1 ratio on the NYSE and for a 1.74-to-1 ratio on the Nasdaq.
The S&P index recorded three new 52-week highs and 29 new lows, while the Nasdaq recorded 21 new highs and 156 new lows.