Stocks dropped on Friday as jitters over the global economy were sparked by dreadful manufacturing data out of Europe and the Federal Reserve’s cautious outlook on the U.S. economy.
The Dow Jones Industrial Average traded 300 points as Nike shares underperformed. The S&P 500 fell 1.1 percent, led by declines in the energy and financials sectors. The Nasdaq Composite declined 1.3 percent.
“There’s a host of worries out there and those worries continue to mount,” said Peter Cardillo, chief market economist at Spartan Capital Securities. “The fear of recession is increasing.”
“As a result, we have a market that is rethinking some of the optimism that was priced in.”
Nike shares also pressured stocks. The athletic apparel company’s stock fell 5.2 percent on the back of weak quarterly sales growth in North America.
IHS Markit said Friday that manufacturing activity in Germany dropped to its lowest level in more than six years in March. In France, manufacturing and services slowed down to their lowest levels in three months and two months, respectively. For the euro zone as a whole, manufacturing fell to its lowest level since April 2013.
These data sent the German 10-year bund yield to their lowest level since 2016, briefly dipping into negative territory.
In the U.S., the spread between the 3-month Treasury bill yield and the 10-year note rate turned negative for the first time since 2007 — thus inverting the so-called yield curve — according to Refinitiv Tradeweb data. An inverted yield curve happens when short- term rates surpass their longer-term counterparts. This is considered a trustworthy indicator of a recession coming in the near future.
These moves come after U.S. central bank surprised investors by adopting a sharp dovish stance on Wednesday, projecting no further interest rate hikes this year and ending its balance sheet roll-offs.
Market sentiment was boosted by the Fed’s updated outlook on interest rates, but the reasons behind it caused some concern.
“Let’s not lose sight of the fact that we’ve had a nice rally over the last couple of weeks,” said JJ Kinahan, chief market strategist at TD Ameritrade. “Today is not a great day, but after a strong week or two you tend to get a bit of a sell-off.”
“Now, should you be cautious? Absolutely, because the slowdown worldwide is something people need to be cautious about.”
Stocks were on track to post solid gains for the week through Thursday’s close as sharp increases in the tech and consumer discretionary sectors curbed lingering worries over U.S.-China trade talks.
A U.S. trade delegation, headed by Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, will visit China for a two-day meeting at the end of next week. Chinese Vice Premier Liu He is then expected to travel to Washington in early April.
President Donald Trump said in an interview that aired Friday that talks were going well. However, he also said tariffs on Chinese goods would only come off once China complied with the agreed upon trade deal.
The long-running trade dispute between the world’s two largest economies has battered financial markets in recent months, souring business and consumer sentiment.
—CNBC’s Sam Meredith contributed to this report.