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Expand chart
Data: FactSet; Chart: Axios Visuals

The Dow Jones Industrial Average fell 800 points — or 3.05% — on Wednesday, after the bond market flashed a warning sign that's predated every recession for the past 50 years.

Why it matters: Wednesday was the stock market's single worst day of 2019. The "yield curve inversion" — which President Trump called "crazy" — comes when short-term Treasury bonds yield a higher rate than the long-term variety.

By the numbers: The S&P 500 dropped 2.93%, the Nasdaq closed down 3.02%, and U.S. bond yields also extended declines. The 10-year yield fell below the 2-year yield for the first time since 2007 — marking the "yield curve inversion" that spooked investors.

  • As the market slumped, Trump blamed the Federal Reserve for raising interest rates "too much and too fast" in a series of tweets:
    • "Our problem is with the Fed. Raised too much & too fast. Now too slow to cut. Spread is way too much as other countries say THANK YOU to clueless Jay Powell and the Federal Reserve. Germany, and many others, are playing the game! CRAZY INVERTED YIELD CURVE!"

The big picture: The inverted yield curve is just one example of concerning indicators, as Axios Markets' Dion Rabouin notes.

  • Global economic data has worsened in 2019, with Japan and 3 of Europe's 4 largest economies — Germany, Italy and the U.K. — heading toward recession by year-end, and China growing at its slowest pace in 27 years.
  • The bond market has priced in the negative effects of the trade war, triggering recession alarms this year that have been accurate since World War II.
  • Those alarms included the New York Fed's recession probability indicator hitting its warning level.

What they're saying:

  • Invesco's Kristina Hooper to WSJ: “The Fed doesn’t have the cure for an economic slowdown or recession. ... But I do think the Fed has the antidote for the stock-market selloff.”
  • Credit Suisse's Jonathan Golub on Bloomberg TV: “This is not a positive sign for the market. ... The Fed is totally empowered to change this dynamic and the market is saying they have to.”

What's next: Markets "tend to keep moving higher immediately following a yield-curve inversion," WSJ notes.

  • "Since 1978, the S&P 500 has risen 13%, on average, from the first time the spread inverts on a closing basis to the beginning of a recession."

The bottom line: Wednesday's sell-off reconciled what has so far been conflicting sentiments between the bond and stock market.

  • As investor optimism has pushed stocks to record highs, the bond market has consistently sent a much more cautious message — that a recession is coming sooner than we think.

Go deeper

"Atmospheric river" to whiplash Northern California from drought to flood

A map depicting 24-hour preciptation forecast (inches) ending Monday at 5a.m. local time. Photo: NOAA

A series of powerful "atmospheric river" storms are set dump historic amounts of rainfall across parts of drought-stricken California and the Pacific Northwest from this weekend, forecasters warn.

Why it matters: A strong atmospheric river, packing large amounts of moisture, is predicted to whiplash Northern California from drought to flood.

10,000 trees near giant sequoia groves to be removed after fires

A firefighter looks up at a giant sequoia tree after fire burned through the Sequoia National Forest near California Hot Springs, California, on Sept. 23. Photo: Patrick T. Fallon/AFP via Getty Images

"Upwards of" 10,000 trees near giant sequoia groves have been "weakened by drought, disease, age, and/or fire" and must be removed in the wake of California's wildfires, the Sequoia and Kings Canyon National Parks announced.

Why it matters: The damage to these trees, considered "national treasures," and work to remove them means a nearby key highway must remain closed to visitors as they have "the potential to strike people, cars, other structures, or create barriers to emergency response services," per a statement from the national parks.

Obama stumps for McAuliffe, urges Virginians not "to go back to the chaos"

Photo: Win McNamee/Getty Images

Former President Barack Obama framed a Nov. 2 gubernatorial race as a bellwether for the Democratic Party and the country, telling a crowd at a campaign event for Terry McAuliffe on Saturday that "I believe you, right here in Virginia, are going to show the rest of the country and the world that we're not going to indulge in our worst instincts."

Why it matters: With just over a week to go before Election Day in the Commonwealth, McAuliffe is bringing out the big guns. The 44th president appeared on the campus of Virginia Commonwealth University to urge supporters to get to the polls.