The bears were out in force as the mighty German economic machine contracted, Chinese data missed estimates, Hong Kong wallowed in chaos, and bond yield curves inverted in the US and UK.
Dow Dives More than 2%
As of 12:33 pm ET, the Dow Jones Industrial Average had lost a staggering 629 points or 2.4%. The index last traded at 25,650.
The S&P 500 and Nasdaq also crashed more than 2% after US Treasury bonds suffered their first main yield curve inversion since the financial crisis.
The fact that a US 2-year note yielded more than a 10-year is a significant worry for Dow bulls given that this has heralded every major recession in the United States since 1956.
BAML: “For the ten [2/10] inversions back to 1956, the S&P 500 topped out within approximately three months of the inversion six times (1956, 1959, 1965, 1973, 1980, and 2000).
The S&P 500 took 11 to 22 months to peak after the other four inversions (1967, 1978, 1989, and 2005)
— Carl Quintanilla (@carlquintanilla) August 14, 2019
The fear looks even more justified in the broader context of a world ravaged by slowing economies and simmering trade war tensions.
The Stock Market’s Bearish Stars Are Aligning Into a Devastating Constellation
The bearish stars are certainly aligning.
Germany, the cornerstone of the Eurozone economy is in serious trouble. These GDP woes would only heighten if Trump wins in 2020 and moves the fight away from China and onto European car exports.
Elsewhere, Chinese data was miserable, suggesting that even more easing might be necessary for the already dangerously leveraged economy. Hong Kong is a significant financial hub, so the dramatic drop off in its economic performance amid the protests is concerning as well.
Chief Economist James Knightley at IMG offers some prosaic thoughts on the outlook for US equities. The Dutch investment bank maintains its view that President Trump will come to the Dow Jones’ aid in its darkest hour.
“We continue to make the case for an eventual more stable truce on trade with China as President Trump looks to focus on re-election next year. He will recognise that a strong economy with rising asset prices is critical for his campaign so securing some form of a deal will help lift a huge dark cloud hanging over the global economy”
Dow Jones Stocks: Defensive Play Coca-Cola Shines, Financials Struggle
Oil companies Chevron and Exxon Mobil were both down around 3% as a surprising rise in US crude inventories stunned the market, sending the price of oil lower.
In direct contrast to Tuesday, the value of Coca-Cola was a rare green shoot, rising 0.5% as the rest of the Dow Jones took a pounding.