Markets Fall 2% on Concerns About Slowing Recovery
Shares on Wall Street quickly retreated Wednesday morning in the face of the Fed’s decision to buy government debt and more economic news that pointed to a slowdown, both in the United States and China.
In the bond market, the price of the 10-year Treasury note continued to rise, as yields fell to lows not seen in more than a year. The 10-year yield was at 2.72 percent from 2.76 percent late Tuesday.
And the dollar strengthened against the euro, but hit a 15-year low against the yen, driving the Nikkei index sharply lower.
Equity indexes were down at least 2.3 percent in mid-afternoon trading in the first full day after the Fed said the recovery had slowed and that it had decided to recycle the proceeds of its mortgage-bond portfolio into Treasuries. In addition, investors were treated to some gloomy trade figures that caused the outlook for second-quarter growth to be revised lower.
The US’s trade deficit unexpectedly widened 18.8 percent in June, as American exports slacked off.
The deficit was much wider than expected as imports continued to surge, especially in automobiles and consumer goods. Nigel Gault, the chief United States economist for IHS Global Insight, said the deficit combined with other weak data suggested that second-quarter growth was only 1.2 percent, “placing the economy on even shakier ground than it seemed, and underlining why the Fed has shifted towards an easing bias.”
The original government estimate was for 2.4 percent growth in the second quarter.
But Mr. Gault said the trade deficit could improve in the coming months; imports may slow as consumer demand weakens.
As stocks fell, the price of 10-year Treasury notes continued to rise. Yields reached lows not seen in more than a year. The 10-year yield was at 2.69 percent from 2.76 percent late Tuesday.
In mid-afternoon, the Dow Jones industrial average was down 245.51 points, or 2.31 percent, while the broader Standard & Poor’s 500-stock index dropped 30.10 points, or 2.68 percent. The technology heavy Nasdaq fell 66.95 points, or 2.94 percent.
The decline was broad-based, led by basic materials, band and industrial shares. More S.&P. sectors were down at least 2 percent.