Stocks Waver, Bonds Rally as Recession Fears Mount

What You Need to Know

The odds of a U.S. recession in the next year are now 38%, according to latest forecasts from Bloomberg Economics.

Treasuries rallied, stocks wavered and the prices of commodities fell as recession fears continue to grip markets, outweighing the optimism over U.S.-China talks aimed at tariff reductions.

The S&P 500 pared losses after dropping more than 2%. The tech-heavy Nasdaq 100 pushed higher after falling as much as 1.9% earlier in the session.

Treasury yields declined, with the 10-year yield around 2.81%.

The dollar rose to its strongest level in more than two years, making commodities priced in the currency less attractive. West Texas Intermediate crude futures dropped the most since early March on concerns that a global slowdown will impact demand.

Copper, which is considered an economic bellwether, fell to its lowest price in 19 months. Energy and mining stocks plunged as commodities declined, dragging the S&P 500 lower.

“They’re getting that one, two punch of lowering demand expectations and then also a stronger dollar,” said Shawn Cruz, head trading strategist at TD Ameritrade. “I think that was expected at some point when you had all these elevated commodity prices. It looks like, unfortunately, that’s getting resolved via demand destruction not an improvement in the supply.”

Investors continue to fret over a potential US recession and stubborn inflation despite talks of tariff reductions. U.S. and Chinese officials held discussions after reports that Washington is close to rolling back some of the trade levies imposed by the former administration.

Reducing tariffs on imported Chinese goods could impact consumer prices in the US, but some suggest that it would do little to cool inflation.

Data released Tuesday also showed durable goods orders and factory orders rose more than expected in May.

“What the market is now pricing in is a more broad global slowdown,” Cruz said.

The odds of a U.S. recession in the next year are now 38%, according to latest forecasts from Bloomberg Economics.

Signs of a rapidly deteriorating U.S. economic outlook have 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.