Recession jitters and business uncertainty send U.S. stocks plummeting

By Alexis Simendinger and Al Weaver

Fears of a looming U.S. recession became painfully evident on Wednesday as warning signs of a slowdown flashed around the world.

U.S stocks suffered their worst day of losses this year — sending the Dow Jones Industrial Average down 800 points — after turmoil in the U.S. bond market and weak economic data from Germany and China raised the odds of a worldwide contraction.

The market plunge reflects a collective assessment that economic projections for slower growth next year could lurch into contraction, ending more than a decade of U.S. expansion following the 2008 global financial crisis (The Hill).

Analysts pointed to worrisome indicators that another recession, long considered inevitable, may be nearer than imagined just a few months ago.

The yield on the benchmark 10-year Treasury note on Wednesday briefly broke below the 2-year rate, a phenomenon seen as a warning of tumult ahead. Investors rushed for cover in long-term, safe-haven assets (CNBC).

Analysts are debating whether a shock that may have snuffed out a lengthy expansion came from President Trump’s trade war with China or a mistake by Federal Reserve policymakers last winter. Trump has pointed to monetary policy set by the Fed as a problem, while the central bank has argued that its toolbox is ill-suited to fix tariff tensions (Reuters).

Wednesday’s market drop felt like whiplash a day after a 1.5 percent gain, driven by the White House decision to retreat for the rest of the year from Trump’s threatened next round of tariffs on Chinese imports. The announcement reflected concern that U.S. consumers, the undisputed engine behind U.S. growth, are critical to the holiday shopping season.

But there is increasing evidence that the fight between the two largest economies over trade, technology and economic dominance has already done significant damage to the world economy (The New York Times).

Germany reported on Wednesday that its economy shrank in the last quarter. If the next quarter is in decline, it means the eurozone’s largest economic engine is in recession. New indicators reported on Wednesday showed that China’s economy is slowing.

Neil Irwin of The New York Times explains that the turmoil reflects many factors around the world, including political dysfunction, uncertain policymaking and international conflicts: “The shift in the bond market since late July, and especially on Wednesday, signals something bigger is going on. The trade war is just one piece of it.”

A U.S. recession in 2020 would reshape the presidential contest and, if history is a guide, significantly weaken Trump’s chances for reelection. It could also cast a different light on Democratic candidates’ policy prescriptions and voters’ views of their executive experience and economic advisers. The president has unabashedly claimed credit for the stock market when it climbed, and he will find it difficult to dodge blame if investments plummet, growth stalls and employers shed workers.

Our country now has the hottest economy anywhere in the world,” Trump assured plant workers in Pennsylvania this week. “Our economy is roaring.”

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