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Recession fears hit stocks

Stocks sank Wednesday after the bond market threw up one of its last remaining warning flags on the economy.

The yield on the 10-year Treasury briefly dropped below the two-year Treasury's yield Wednesday morning. It's rare for short-term yields to rise above longer-term ones, and when it happens, market watchers call it "an inverted yield curve" and brace for the possibility of a recession hitting in a year or two.

The Dow Jones Industrial Average dropped as much as 475 points in the first few minutes of trading before recouping some of its losses.

Weak economic data around the world also unnerved investors, who flipped back into selling mode after driving a rally Tuesday on hopeful signals that the U.S.-China trade war may not be worsening so much.

Germany, Europe's largest economy, shrank 0.1% in the spring from the first three months of the year due to the global trade war and troubles in the auto industry. Data from China also showed that factory output, retail spending and investment weakened in July for the world's second-largest economy.

"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 1.7%, as of 10 a.m. Eastern time, giving back all of the prior day's jump after the U.S. delayed some of the tariffs threatened on Chinese imports. The Dow lost 435 points, or 1.7%, to 25,841, and the Nasdaq composite lost 1.9%.



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