US stocks extend declines as recession fears persist

Stocks tumbled as recession fears gripped markets, outweighing the optimism over US-China talks aimed at tariff reductions.

The S&P 500 briefly dropped more than 2 per cent while the Nasdaq 100 fell more than 1 per cent. Treasury yields declined, with the 10-year yield around 2.82 per cent. The dollar rose, making commodities priced in the currency less attractive. Crude oil dropped to trade around $103 a barrel while copper, which is considered an economic bellwether, fell to its lowest in 17 months.

“This is a recession trade,” said Neil Dutta, head of economics at Renaissance Macro Research LLC. “There is no other way of describing it.”

US and Chinese officials held discussions after reports that Washington is close to rolling back some of the trade levies imposed by the former administration. But investors continue to fret over a potential US recession and stubborn inflation. While reducing tariffs on imported Chinese goods could impact consumer prices in the US, some suggest that it could 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 thus far has wrought heightened levels of uncertainty, disruption and dysfunction that has rattled asset class values across the spectrum of the good, the bad, and the ugly,” said John Stoltzfus, chief investment strategist at Oppenheimer & Co.

Data released on Tuesday also showed durable goods orders increased more than expected in May.

US markets reopened on Tuesday after capping 11 declines in the past 13 weeks as a first-quarter contraction in the world’s largest economy boosted the prospects of a recession. At the same time, consumer prices are far from peaking with inflation surging to 8.6 per cent in May that left little room for the Federal Reserve to slow monetary tightening.

“The Fed will likely remain aggressive in its fight against inflation for now,” said Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital. “At the same time, European growth is slowing down fast. This just puts additional fire on the growth concerns about the US.”

Signs of a rapidly deteriorating US economic outlook have now spurred bond traders to pencil in a complete policy turnaround by the Federal Reserve in the coming year, with interest-rate cuts in the middle of 2023.

In Australia, the central bank raised its key interest rate as expected to 1.35 per cent. It’s among more than 80 central banks to have raised rates this year. The nation’s dollar weakened after the decision.