Traders work on the floor at the New York Stock Exchange, August 13, 2019.
Eduardo Munoz | Reuters
Stock futures stabilized after opening the overnight session lower. The little changed trading follows the Dow Jones Industrial Average’s worst day of the year on Wednesday amid a recession signal from the bond market.
Dow futures opened down about 32 points Wednesday evening, but then climbed back to about little changed. The stock market took a huge hit in the previous session with the Dow plunging 800 points in its fourth-largest point drop ever to a two-month low. The Dow’s 3% drop was the worst this year. The S&P 500 also fell nearly 3%.
The massive sell-off was triggered by a bond market phenomenon on Wednesday where the yield on the benchmark 10-year Treasury note briefly broke below the 2-year rate. The inversion of this key part of the yield curve has been a reliable indicator of economic recessions. As of Wednesday evening, the curve was no longer inverted.
“The 2-10 inversion is sending a massively negative signal that stocks are having a difficult time ignoring,” Adam Crisafulli, a J.P. Morgan managing director, said in a note on Wednesday.
The weak economic data around the world also fueled concerns that the global slowdown could tip the U.S. economy into a recession. Growth of China’s industrial output slowed to 4.8% in July from a year earlier, the weakest growth in 17 years. Germany also saw a negative GDP print, while the growth in euro zone also slowed at a faster pace than expected.
Investors remained on edge about the trade tensions between the U.S. and China. President Donald Trump in a tweet after the bell Wednesday linked the trade battle to the increasingly violent protests in Hong Kong, further complicating the trade issue. But he also proposed a personal meeting between him and Chinese President Xi.
This week, Trump decided to delay tariffs on certain Chinese goods while outright removing some items from the tariff list, a move to avoid any negative impact on the holiday shopping season. The announcement sent the Dow rallying more than 300 points on Tuesday. Those gains were lost in the big sell-off Wednesday.
The deferral “helps China more than us, but will be reciprocated,” Trump said Wednesday.