Dow down 720 points after bond market warns of recession

The threat of a recession doesn’t seem so remote anymore for investors in financial markets.

The yield on the closely watched 10-year Treasury fell so low Wednesday that, for the first time since 2007, it briefly crossed a threshold that has correctly predicted many past recessions. Weak economic data from Germany and China also fanned fears of a global slowdown.

That spooked investors, who responded by dumping stocks, sending the Dow Jones Industrial Average into an 800-point skid, its biggest drop of the year. The S&P 500 index dropped nearly 3% as the market erased all of its gains from a rally the day before. Tech stocks and banks led the broad sell-off. Retailers came under especially heavy selling pressure after Macy’s issued a dismal earnings report and cut its full-year forecast.

Investors have been plowing money into the safety of U.S. government bonds for months amid growing anxiety that weakness in the global economy could sap growth in the U.S. Uncertainty about the outcome of the U.S. trade war with China has spurred a return of volatility to the stock market in August — the Dow has dropped more than 5% and the S&P 500 is down more than 4%.

Economic data from two of the world’s biggest economies added to investors’ fears Wednesday. European markets fell after Germany’s economy contracted 0.1% in the spring due to the global trade war and troubles in the auto industry. In China, the world’s second-largest economy, growth in factory output, retail spending and investment weakened in July.

“The bad news for global economies is stacking up much faster than most economists thought, so trying to keep up is exhausting,” Kevin Giddis, head of fixed income capital markets at Raymond James, wrote in a report.

The S&P 500 fell 85.72

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