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U.S. Stocks Show Steep Drop Amid Bond Yield Inversion

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Stocks have moved sharply lower at the start of trading on Wednesday and have seen some further downside over the course of the morning. With the pullback, the major averages are offsetting the strong gains posted in the previous session.

Currently, the major averages are just off their lows of the session. The Dow is down 457.66 points or 1.7 percent at 25,822.25, the Nasdaq is down 160.62 points or 2 percent at 7,855.73 and the S&P 500 is down 50.98 points or 1.7 percent at 2,875.34.

The initial sell-off on Wall Street came amid concerns about a potential recession after the yield on the benchmark ten-year note dropped below the yield on the two-year note earlier this morning.

The inversion is widely seen as an indicator of a recession, although data from Credit Suisse shows the economic downturn typically does not occur until almost two years later.

The yield on the closely watched thirty-year bond has also shown a notable decrease, tumbling to a new record intraday low.

The strength among treasuries and the subsequent drop in yields comes as a disappointing batch of Chinese economic data has led to renewed concerns about the global economy, leading traders to seek safe havens such as bonds.

Traders will be given a clearer picture of the strength of the U.S. economy with the release of an avalanche of economic data on Thursday.

Reports on weekly jobless claims, retail sales, and industrial production are likely to be in the spotlight, although data on regional manufacturing activity, labor productivity and costs, business inventories, and homebuilder confidence may also attract attention.

The Labor Department released a report this morning showing import prices in the U.S. unexpectedly showed a modest increase in the month of July.

Import prices rose by 0.2 percent in July after plunging by a revised 1.1 percent in June, while economists had expected import prices to come in unchanged.

The report also showed an unexpected uptick in export prices, which crept up by 0.2 percent in July after falling by a revised 0.6 percent in June. Export prices had also been expected to come in unchanged.

Energy stocks are turning in some of the market's worst performances in morning trading amid a steep drop by the price of crude oil. Crude for September delivery is plunging $2.07 to $55.03 a barrel amid concerns about global energy demand.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index has plummeted by 5.3 percent, the NYSE Arca Natural Gas Index is down by 3.7 percent and the NYSE Arca Oil Index is down by 3 percent.

Worries about the outlook for global demand have also contributed to a substantial pullback by steel stocks, with the NYSE Arca Steel Index tumbling by 3.3 percent.

Retail, banking, and technology stocks are also seeing significant weakness, while gold stocks are among the few groups bucking the downtrend amid a jump by the price of the precious metal.

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index shot up by 1 percent, while China's Shanghai Composite Index rose by 0.4 percent.

Meanwhile, the major European markets have shown significant moves to the downside on the day. While the U.K.'s FTSE 100 Index has tumbled by 1.6 percent, the French CAC 40 Index and the German DAX Index are down by 2.1 percent and 2.2 percent, respectively.

In the bond market, treasuries continue to see notable strength after an initial jump. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 8.5 basis points at 1.595 percent.

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