Wall Street flips over into a sea of red on Global recession fears

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  • The DJIA lost 800 points, or ended 3.1%, lower at 25,479
  • S&P 500 index, it closed heavily in the red as well, down 2.9% at 2,841
  • Nasdaq Composite Index dropped 3% lower to close at 7,773.

The Dow Jones Industrial Average closed at session lows on Wednesday with the recession fears penetrating their way through to US stocks despite Trump’s best efforts to Twitter-up the markets today as investor anxieties are just too deep-rooted at this point. The DJIA lost 800 points, or ended 3.1%, lower at 25,479. As for the S&P 500 index, it closed heavily in the red as well, down 2.9% at 2,841. The Nasdaq Composite Index dropped 3% lower to close at 7,773.

Investors took heed of the fact that a yield curve inversion along the 2-year and 10-year spread has come before the last seven recessions. However, on the upside, the Federal Reserve may well be inclined to continue on a path of easing which would, when compared to competitor markets overseas, still encourage likely leave the US economic conditions more attractive than most, supporting the benchmarks.  

Global recession fears bite and a 50 basis point cut from the Fed is priced-in again

“Risk markets took fright following yesterday’s sharp deceleration in annual Chinese industrial production and retail sales growth in July. News that the German economy contracted in Q2 cemented the risk-off tone. Weak (and in some cases contracting) global output is driving expectations for further easing by global central banks. Markets are once again pricing in a significant chance that the Fed will cut 50bp. Fixed income rallied, with the US 2-10 year curve inverting for a time,”

analysts at ANZ Bank explained. 

DJIA levels

The DJIA is on course for a break below August lows having pierced below the 200-day moving average. Bears will target a run to the 50% mean reversion level of the late Dec 2018 swing lows and mid-July swing market highs, with the target located down in the 24500s.

 

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