US stocks veer lower in latest bout of market volatility

Closely watched bond market indicator pointed to renewed risk of recession

Traders and financial professionals work on the floor of the New York Stock Exchange. Getty Images

Stocks around the world remained stuck in a spin cycle on Thursday as worries of a recession clashed with hopes that retail, the strongest part of the US economy, can keep going.

The major US stock indexes veered lower in afternoon trading, shedding earlier gains as the market continued to be gripped by volatility.

The latest slide added to the market's steep loss from Wednesday, when the S&P 500 had its worst day of the year after a fairly reliable warning signal of recession from the bond market.

Stocks in Asia and Europe started the latest wave of selling early on Thursday after China said it would take "necessary counter-measures" if US President Donald Trump imposed tariffs on more than $100 billion (Dh367.45bn) of Chinese goods on September 1.

The US bond market, which has issued among the earliest of warnings about the economy, continued to show concern as yields fell.

Markets around the world, from stocks to gold to oil, have bounced up and down for weeks.

Investors have been hit by uncertainty around Mr Trump's trade war and what central banks will do with interest rates.

In the US, Walmart shares climbed 3.8 per cent, briefly helping to steady the market after it reported a bigger profit in the past three months than Wall Street expected, thanks in part to strong online sales of groceries.

A government report showed that retail sales across the country last month rose more than economists expected.

The S&P 500 was down 0.4 per cent as of 1.56pm eastern time. It swung between a 0.6 per cent high and 0.5 per cent loss. A day earlier, it plunged 2.9 per cent.

The Dow Jones Industrial Average fell 119 points, or 0.5 per cent, to 25,353, and the Nasdaq composite slid 0.7 per cent.

Consumer spending makes up most of the US economy.

Shoppers have carried the economy recently amid worries that businesses will pull back on their spending because of the trade war.

Other economies are slowing as the trade war is damaging manufacturers around the world.

Those concerns helped to drive the yield on the 10-year Treasury down to 1.50 per cent on Thursday from 1.58 per cent late on Wednesday.

That yield has been steadily dropping since late last year, when it was above 3 per cent.

The 10-year yield has sunk so much that it dropped below the yield of the two-year Treasury on Wednesday, a rare occurrence that has historically suggested a recession may be a year or two away.

The 30-year Treasury yield fell to 1.94 per cent from 2.02 per cent and earlier touched a record low in a sign of concern among investors.

Fears of weaker economic growth and inflation sends investors towards Treasuries, pushing up their prices and driving down yields.

"The countdown to a recession has just started," said Hussein Sayed, chief market strategist at FXTM.

Mr Trump again defended his trade war on Thursday, saying a resolution with China has "got to be a deal, frankly, on our terms".

After being hopeful this year that a trade agreement could be imminent between the world's two largest economies, investors are increasingly expecting the dispute to drag on for years.

But the trade war is not the only worry for investors.

Britain's pending exit from the EU, political unrest in Hong Kong and a different trade war between South Korea and Japan are adding to the gloom.

The worries have pulled the S&P 500 down 5.1 per cent so far this month, while other markets are down even more sharply.

The S&P 500, though, remains within 6% of its record set late last month.

"The fact is that no one actually knows what is next for the markets," said Fiona Cincotta, senior market analyst at City Index. "However, the signs flashing from the markets are not great."

Cisco Systems plunged 8.8 per cent in one of the sharpest losses for the S&P 500 after the technology giant gave a profit forecast that fell short of some analysts' expectations.

Technology stocks in the S&P 500 were weak in general, but there were gains for stocks of companies that sell consumer products helped to offset them.

Besides Walmart's surge, Procter & Gamble rose 1.2 per cent and Coca-Cola 1.1 per cent.

In Europe, Germany's Dax sank 0.7 per cent, while France's CAC 40 lost 0.3 per cent. The FTSE 100 in London dropped 1.1 per cent.

Japan's Nikkei 225 fell 1.2 per cent, and the Hang Seng in Hong Kong rose 0.8 per cent.

Commodity prices, which have been swinging sharply on worries that a weaker global economy will dent demand, were lower.

Benchmark US crude fell $1.14 to $54.09 a barrel. Brent crude, the international standard, lost $1.58 to $57.90.

Gold, which has rallied when worries about the economy have grown, added $9.40 to $1,537.20 an ounce.