Stocks slump to 3 month lows, bonds rally, as recession fears rise with trade war

Stocks fell sharply Wednesday, with the Dow Jones Industrial Average seeing its lowest levels since January 29 and the S&P 500 index fell to its lowest levels since March 8, as the U.S.-China trade war rumbles on raising fears of a recession.

All 11 sectors of the S&P 500 index retreated, with communications and energy shares leading the drop.

The U.S. ten-year Treasury bond yield fell to the lowest level since September 2016 crude oil prices fell to their lowest level since March, while the U.S. dollar and gold rose.

After a statement from Special Counsel Robert Mueller, stocks fell to their lowest levels of the day before trimming losses, but it was unclear if anything Mueller said impacted the market, according to traders. Mueller passed responsibility for any further action against President Trump to Congress. He reiterated that his report, first published in April, did not exonerate or accuse Mr Trump of obstructing justice.

Ticker Security Last Change Change %
I:DJI DOW JONES AVERAGES 34269.16 -473.66 -1.36%
SP500 S&P 500 4152.1 -36.33 -0.87%
I:COMP NASDAQ COMPOSITE INDEX 13389.426186 -12.43 -0.09%

Investors view the plunge in bond yields as a sign global economic growth is slowing as the trade war begins to disrupt supply lines and raise prices for companies and consumers, with the full impact of American tariffs yet to be felt.

The U.S. and China have imposed tariffs on billions of dollars’ worth of each others imports since the start of 2018, undermining business confidence and potentially disrupting complex global production chains.

With long term bond yields now lower than short term rates, the yield curve inversion should be of great concern for the economy and investors, Bankrate senior economic analyst Mark Hamrick told FOX Business’ Neil Cavuto

“It should worry us because it has a pretty good track record of telling us that a recession is down the road,” he said on Wednesday.

In the latest move, Chinese state media this week raised the possiblity of limiting the export of rare earth minerals which are key to the manufacture of high technology and are used in the production of mobile phones, memory chips and rechargeable batteries.  China supplies about 80 percent of the world's rare earth minerals. Semiconductor makers in particular would be affected by a ban on such exports.  Chips stocks such as Nvidia were lower.

Bank shares also fell along with bond yields, with longer dated debt yields now below short term interest rates. Long term bond yields are now below short term rates by the most since the 2008 financial crisis.

Ticker Security Last Change Change %
AAPL APPLE, INC. 125.91 -0.94 -0.74%
NVDA NVIDIA CORP. 572.25 +1.62 +0.28%
JPM JPMORGAN CHASE & CO. 158.64 -2.58 -1.60%
CAT CATERPILLAR, INC. 239.18 -3.75 -1.54%

In commodities markets, U.S. West Texas Intermediate crude oil fell to a low of $57.55 per barrel, the lowest level in two months. U.S. crude oil prices lost 6.8 percent last week as weak demand overshadowed threats to supply from the U.S. sanctions on Iranian exports.