Treasuries rose, stocks fell and commodity prices fell as recession fears continued to grip markets, outweighing optimism over talks between the United States and China aimed at lowering tariffs.
The S&P 500 pared its losses after briefly dropping more than 2 per cent, while the tech-heavy Nasdaq 100 index wobbled. Treasury yields fell, with the 10-year Treasury yielding 2.79 percent.
The dollar rose to its highest level in more than two years, making commodities priced in the currency less attractive. West Texas Intermediate crude futures fell below $100 a barrel for the first time since May 11 while copper, considered an economic leader, fell to its lowest level in 19 months. Energy and mining stocks fell as commodities fell, dragging the S&P 500 lower.
At 12:23 p.m. ET, the Dow Jones Industrial Average was down 492.96 points, or 1.59 percent, at 30,604.30, and the S&P 500 was down 45.90 points, or 1.20 percent, at 3,779.43. The Nasdaq Composite Index rose 10.47 points, or 0.09 percent, to 11,138.31, recouping its early losses. The TSX index fell by 456.54 points, or 2.4 percent.
Investors remain concerned about a potential US recession and stubborn inflation despite talks about tariff cuts. US and Chinese officials held discussions after reports that Washington was about to roll back some of the trade tariffs imposed by the previous administration. Reducing tariffs on imported Chinese goods may affect US consumer prices, but some suggest it can do little to cool inflation.
“With the first half of the year moving into the rear-view mirror, investors can’t help but wonder what lies ahead in a year that has so far led to rising levels of uncertainty, turbulence and dysfunction that have destabilized the values of asset classes across the spectrum,” said John Stoltzfus, senior investment analyst at Oppenheimer & Company.
Data released on Tuesday also showed that durable goods and factory orders rose more than expected in May.
The odds of a US recession next year are 38 percent, according to Bloomberg Economics’ latest forecast. Signs of a rapid deterioration in the US economic outlook have now prompted bond traders to make a full policy shift by the Federal Reserve next year, with interest rate cuts in mid-2023.
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“If the Fed changes course now, it could pack its bags and turn off the lights,” Kenneth Polkari, chief market analyst at Slatestone Wealth LLC, wrote in a note. “Yes, the economy is slowing down but inflation is still a problem and that’s the focus now.”
In Australia, the central bank raised the key interest rate as expected to 1.35 per cent. It is among more than 80 central banks that have raised interest rates this year. Weakness of the dollar in the country after the decision.
In Europe, stocks fell to their lowest level since January 2021 ahead of earnings season, which investors are watching closely to see if corporate earnings growth can handle inflation and supply constraints.
Bitcoin is down, trading below the $20,000 level.
Additional reporting from Reuters