Stocks tumbled Friday as weak manufacturing reports in the U.S. And abroad sparked fresh worries about the global economy.
Another catalyst for the sell-off: a closely-watched signal of recession reared its head for the first time since the Great Recession.
The Dow Jones industrial average closed down 460.19 points, or about 1.8 percent, at 25,502.32. The Standard & Poor’s 500 index dropped 54.17, or 1.9 percent, to 2800.71, its worst loss since January 3.
A measure of U.S. Manufacturing activity fell to a 21-month low. And an index of manufacturing in the euro zone plunged to its lowest level since 2013, igniting new fears of recession in the region.
“Today was just another wake-up call that the global economy is continuing to slow,” says Ryan Detrich, senior market strategist for LPL Financial.
Meanwhile, the “yield curve” inverted for the first time since 2007. That means a Treasury bill that matures in three months is yielding 2.45 percent — slightly more than the yield of a Treasury note that matures in 10 years. Put simply, that means investors don’t have lots of confidence in the longer-term economic outlook.
Yet,”A flatter yield curve is the ‘new normal,'” economist Gregory Daco of Oxford Economics wrote in a note to client. That’s because inflation remains low and central banks around the world are holding down long-term rates. While the yield curve is still often a predictor of recessions, it may well not be imminent. Inversions have occurred an average of two years before downturns since the 1980s, Daco says.
The sharp drop in stocks came despite Federal Reserve forecasts this week that it likely won’t raise interest rates at all this year.
Banks and technology companies led the declines, which wiped out the market’s gains for the week.
Citigroup led a slump in banks with a 4.9 percent loss as bond yields continue to drop, threatening the profitability of financial companies that make money from lending.
Big technology companies, which would stand to lose more than other sectors in a slowing economy, fell more than the rest of the market. Hewlett-Packard fell 3 percent and Intel lost 2 percent.
Boeing gave up 2.3 percent after Indonesia’s flag carrier became the first airline to seek to cancel an order of 737 Max 8 jets, which have been involved in two fatal crashes in the past six months.
Nike, another component of the Dow, dropped 5.3 percent after reporting weak sales in North America. And Greenbrier, which makes railroad equipment, plunged 9.7 percent after releasing a dismal forecast.
Investors shifted money into lower-risk, high-dividend stocks. Utilities, real estate companies and makers of consumer products were the only sectors to rise.
Those sectors also became more attractive to investors seeking income as bond yields continued to fall.
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Key bond yields fell this week to their lowest levels in more than a year after the Federal Reserve said it was seeing slower growth in the economy and no longer expected to raise interest rates this year.
Investors are also buying bonds, sending yields lower, because they’re worried about slowing economic growth elsewhere in the world, especially Europe.
The yield on the benchmark 10-year Treasury note, which is used to set rates on mortgages and many other kinds of loans, fell to 2.43 percent from 2.54 percent late Thursday, a big move. That’s down sharply from its recent high of 3.23 percent in early October.
Detrich believes the broad stock market can still reach new highs by year-end if the Trump administration reaches a trade deal with China.