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Jacob Sonenshine: Stocks are falling hard on Wednesday. Here is why. Let's just start with the data. Dow Jones industrial average down as much as 500 points by noon on Wednesday. S and P 500 lost almost 2% at one point on Wednesday. Recession indicators continue to be incredibly abundant. Market cannot handle that right now. ADP out with a report, 135,000 jobs added in the month of September. Expectations were 142,000 so that missed. This is just after on Tuesday 47.8 on the ISM manufacturing index. That's below 50 below expectations of 50.1, anything below 50 is a contraction and economist telling me through emailed remarks. Seven out of the last 11 manufacturing contractions proceeded a recession by not a lot of time. So again, and the yield curve continues to be inverted. All treasuries are down. So the yield curve is not inverting more on Wednesday, but treasury is all down. Now, one question you might want to ask, does this further the case for one more interest rate cut in 2019, which would help stocks, but the federal reserve at present, is becoming less and less dovish, less prone to cutting rates, but does this change their mind a little bit? Anyway, that is why stocks are down on Wednesday.

U.S. stocks were getting smoked Wednesday, and there were several catalysts. 

Here's the comprehensive market break down. 

The Dow Jones Industrial Average fell as much as 521 points Wednesday afternoon, or about 1.9%. The S&P 500 fell as much as 1.85%. The tech-heavy Nasdaq fell as much as 1.77%. 

Recession Fears Abundant 

One more critical piece of economic data came out Wednesday that only furthers the argument a recession is coming sooner rather than later. ADP released its jobs report, which showed the U.S. economy added 135,000 jobs in the month of September, missing economists estimates of 142,000. This comes a day after the ISM Manufacturing Index showed a contraction in manufacturing activity for the month of September. The index showed a reading of 47.8, missing economists expectations of 50.1. Any reading below 50 is a contraction. 

This is particularly concerning data to one economist. "If we look back over the past 45 years, industrial recessions in the G7 have preceded global recessions on 7 out of 11 occasions so a contraction in this sector is an important red flag regarding the staying power of the US economic cycle," said Adam Morehouse, Senior Economist and Director at Dun & Bradstreet in emailed remarks to TheStreet. 

The 3 month and 10 year treasury yields continue to be inverted, although less so Wednesday. The 10 year yield fell to 1.59%, as investors rushed into safer assets. The 3 month treasury also fell considerably to 1.78%. The 30 year treasury fell to 2.09%. 

What's in Focus Next

The falling treasury yields indicate what many see as the economy's need for lower interest rates.

Recently, several Federal Reserve board members have voiced concern over further lowering interest rates in 2019. There have been two rate cuts, but some investors want a third, which one Fed member says could create dangerous excesses the economy cannot stomach. Many have also questioned the effectiveness of future rate cuts, as rates are already at unprecedentedly low levels. The best a rate cut can do for the economy and stock prices would be to provide a "support" level rather than an outright boost, some have said. 

 

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