US Stock Market Overview – Stocks Tumble and Yield Curve Inverts Pointing to a US Recession

US stocks tumbled on Wednesday as yields moved south pushing the 2-year yield versus 10-year yield briefly into an inverted position. Historically an inverted yield curve as nearly always led to a recession. Global economic weakness continues to weigh on US equities. On Wednesday China reported weaker than expected industrial output which hit a 17-year low. Germany also reported that Q2 GDP contracted which likely means that Europe is already in a recession. Energy shares tumbled as crude oil moved south following an unexpected build in crude oil inventories. All sectors in the S&P 500 index were lower, led down by Energy and Cyclicals, Utilities were the best performing sector in a down tape. Utilities are defensive and generally outperform as yields move lower.

Chinese Economic Data was Weaker than Expected

China’s economic reports came in weaker than expected.  Industrial output slowed to a 17-year low at 4.8%, compared to expectations of 6%. Chinese Retail sales slowed from a 9.8% year over year in June to 7.6%.  Fixed asset investment declined to 5.7% from 5.8%.  What appears to be happening is the decline in Chinese economic data is beginning to weaken US manufacturing.

German Data Was Also Weak

German gross domestic product contracted 0.1% in the Q2, with economists and government leaders largely blaming the cool-down in Germany’s export-driven economy on the uncertainty caused by the US-China trade war.

Crude Oil Dropped Weighing on Energy Shares

Energy shares dropped as crude oil prices tumbled in the wake of an unexpected build in stockpiles. Nearly all the energy shares in the S&P 500 index are in bear market territory. The energy information administration reported on Wednesday that crude oil inventories increased by 1.6 million barrels from the previous week. Gasoline inventories decreased by 1.4 million barrels last week and are about 4% above the five-year average for this time of year. Distillate fuel inventories decreased by 1.9 million barrels last week and are about 3% below the five-year average for this time of year. Total commercial petroleum inventories increased last week by 2.4 million barrels last week.

Macy’s Reports Weak Same Store Sales

Macy’s shares skipped on Wednesday as the company reported that sales at stores open at least a year rose 0.2% in the three months ended August 3. Including licensed departments, the measure grew 0.3%. But net income nearly halved to $88 million from $166 million a year earlier on lower asset sales and higher merchandise markdowns.