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Here Are 3 Hot Things to Know About Stocks Right Now

  • The Dow Jones Industrial Average closed down 800 points Wednesday, its worst day of the year, as weak economic data from China, GDP contraction in Germany, and the first inverted U.S. yield curve in 12 years stoked fears of a recession.
  • Benchmark 10-year Treasury note yields fell below yields on two-year notes for the first time since June 2007. Benchmark 30-year bond yields fell to an all-time low.
  • Macy's (M) - Get Free Report shares fell after the iconic retailer missed Wall Street's second-quarter earnings expectations and trimmed its full-year profit guidance. Macy's is Real Money's Stock of the Day.

Wall Street Overview

Stocks finished sharply lower Wednesday as weak economic data from China, GDP contraction in Germany, and the first inverted U.S. yield curve in more than 12 years stoked fears of a global recession.

The Dow Jones Industrial Average recorded its worst day of the year, finishing down 800 points, or 3.1%, to 25,479. The S&P 500 dropped 2.9% and the Nasdaq sank 3%. The Dow and the S&P 500 both closed at two-month lows.

"The continued plunge in interest rates, coupled with the ongoing deterioration in global leading economic indicators and today's long-anticipated inversion in the treasury yield curve, are all proving too much for increasingly wary investors to ignore as the odds of a recession mount," said Alec Young, managing director of global markets research at FTSE Russell.

"And with U.S.-China trade uncertainty lingering," Young said, "investors are increasingly selling first and asking questions later. The only thing seemingly capable of reversing the volatility is credible evidence global growth is bottoming out. That seems too much to hope for right now."

Financial stocks took a beating, with such key players as JP Morgan Chase (JPM) - Get Free Report , Goldman Sachs (GS) - Get Free Report , Bank of America (BAC) - Get Free Report  and Citigroup (C) - Get Free Report all losing ground. Walgreens Boots Alliance (WBA) - Get Free Report was the biggest laggard in the blue-chip index Wednesday.

Nomura said in a note that Goldman Sachs would have a tough time making a profit on the Apple Card. Apple (AAPL) - Get Free Report shares fell 3% to $202.75.

"Investors who believe an inverted yield curve is a bad omen may turn to defensive plays like consumer staples, health care, and utilities," said Mike Loewengart, vice president of investment strategy at E*Trade.

"Regardless of where the yield curve and market may take us, it's critical for investors to stay the course and focus on maintaining a diversified portfolio aligned to their long-term goals."

President Donald Trump took to Twitter to renew his attack on the Federal Reserve, complaining about "clueless (Fed Chair) Jay Powell," and the "CRAZY INVERTED YIELD CURVE!" He also claimed "we are winning, big time, against China."

"China is not the problem, though Hong Kong is not helping," Trump wrote. Our problem is with the Fed. Raise too much & too fast. Now too slow to cut..."

The market's fall Wednesday contrasted sharply to its rise on Tuesday, when the U.S. said it would hold off on levying tariffs on certain Chinese imports. Commerce Secretary Wilbur Ross, speaking on CNBC on Wednesday, said Trump's decision to delay tariffs on certain items was to help consumers during the Christmas shopping season.

The yield on the benchmark 10-year Treasury note fell to 1.576% Wednesday, edging under the yield on the two-year note, which slipped to 1.588%. It was the fist time the yield curve inverted since 2007. Benchmark 30-year bond yields were also active, falling to an all-time low of 2.025%.

 "The yield curve inverting is a worrisome sign, but don't forget it isn't the best timing signal, as a recession doesn't start for an average of 21 months after the initial inversion," said Ryan Detrick, senior market strategist for LPL Financial.

"Given the continued strong employment picture and healthy U.S. consumer, there could still be time for this economic cycle to have plenty of life left," he said.

The inversion of the yield curve is a condition in which two-year yields rise above 10-year yields. It has signaled nearly every U.S. recession for the past 60 years, according to multiple Federal Reserve studies.

The activity followed the weakest industrial output data from China since 2002 and data from Germany showing that Europe's largest economy contracted by 0.1% over the three months ending in June.

Macy's (M) - Get Free Report shares fell 13.2% to $16.80 after the iconic retailer missed Wall Street's second-quarter earnings expectations and trimmed its full-year profit guidance. Macy's is Real Money's Stock of the Day. Retail stocks more broadly were also dropping.

Shares of Tilray (TLRY) - Get Free Report  fell 15.2% to $39.04 after the Canadian cannabis company reported a wider-than-expected second-quarter loss. 

CBS (CBS) - Get Free Report  and Viacom (VIAB) - Get Free Report  agreed to combine in a long-awaited all-stock merger, creating a company with more than $28 billion in revenue and a market capitalization of about $30 billion. CBS was down 8.4% to $44.60, while Viacom was off 8.5% to $26.72.

Cisco Systems (CSCO) - Get Free Report is scheduled to release its fiscal fourth-quarter earnings after the close. On average, analysts polled by FactSet expect revenue of $13.39 billion and earnings of 81 cents a share. The shares were off 4% to $50.61.

In the energy sector, Brent crude contracts for October delivery, the global benchmark, were down $1.96 to $59.34 a barrel, while West Texas Intermediate contracts for September, which are more tightly linked to U.S. gas prices, were down $1.96 at $55.14 a barrel. 

Cisco Systems, Citigroup, Goldman Sachs, JPMorgan Chase and Viacom are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells the stocks? Learn more now.