US STOCKS-Wall Street retreats as bond market fuels recession fears

U.S. stocks fell on Wednesday, as investors reeling from rising trade tensions fled riskier assets for perceived safer havens and the bond markets signaled a higher risk of recession. The premium on three-month Treasury bill rates over 10-year Treasury yields, a closely watched U.S. recession indicator, was at its most elevated levels since March 2007.

The sharp drop in yields also reflected a jump in expectations that the Federal Reserve would cut key borrowing costs three more times by year-end, with markets fully pricing in a reduction in September. "Whether the U.S. economy is strong enough to withstand the next phase of a trade war is giving people concern right now," said Mike Loewengart, vice-president of investment strategy at E*Trade Financial in New York.

The trade concerns remerged after President Donald Trump last week threatened to slap 10% levies on the rest of $300 billion of Chinese imports and called China a currency manipulator on Monday. Central banks in New Zealand, India and Thailand on Wednesday cut rates amid growing fears that the trade war could aggravate a slowdown in the global economy.

"Central banks are trying to preemptively strike by cutting rates. They don't want to wait until after a recession because it'll be too late," said Adam Sarhan, chief executive officer of 50 Park Investments, an investment advisory service in New York. The interest-rate sensitive S&P 500 banks sub-sector slipped 3.34%. The broader financial index dropped 2.18%, the most among nine of the 11 major S&P sectors trading lower.

The energy sector shed 1.75% as oil prices slid more than 3% on demand concerns. At 12:46 p.m. ET, the Dow Jones Industrial Average was down 243.45 points, or 0.94%, at 25,786.07, easing from a near 600 point drop.

The S&P 500 was down 20.97 points, or 0.73%, at 2,860.80 while the Nasdaq Composite was down 33.21 points, or 0.42%, at 7,800.06. The benchmark S&P 500 is now about 6% away from its all-time high it hit last month and on pace to drop for the seventh time in the last eight sessions.

Walt Disney Co dropped 5% after its quarterly earnings missed analysts' forecast on higher investments in its streaming platform. CVS Health Corp climbed 5.7% after the drugstore chain raised its full-year profit forecast.

Declining issues outnumbered advancers for a 1.88-to-1 ratio on the NYSE and for a 1.68-to-1 ratio on the Nasdaq. The S&P index recorded five new 52-week highs and 30 new lows, while the Nasdaq recorded 25 new highs and 176 new lows.

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