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Dow drops more than 450 points; S&P 500 posts worst day since January on worries over economy

CNBC logo CNBC 3/22/2019 Fred Imbert

Stocks dropped on Friday as investors worried global economic growth could slow down following the Federal Reserve's cautious outlook from earlier in the week and weak overseas data.

The Dow Jones Industrial Average closed 459 points lower as bank stocks fell on an inverted yield curve, which some investors see as a signal of a recession coming. The S&P 500 fell 1.9 percent and notched its biggest one-day drop since Jan. 3. The Nasdaq Composite declined 2.5 percent as shares of Facebook, Amazon, Netflix, Alphabet and Apple all closed lower.

"There's a host of worries out there and those worries continue to mount," said Peter Cardillo, a chief market economist at Spartan Capital Securities. "The fear of recession is increasing. ... As a result, we have a market that is rethinking some of the optimism that was priced in."

The spread between the 3-month Treasury bill yield and the 10-year note rate turned negative for the first time since 2007 — thus inverting the so-called yield curve — according to Refinitiv Tradeweb data. An inverted yield curve happens when short- term rates surpass their longer-term counterparts. This is considered by investors as a trustworthy indicator of a recession coming in the near future.

Bank shares led the decline. Citigroup fell more than 4 percent. Goldman Sachs, Morgan Stanley, J.P. Morgan Chase and Bank of America all declined at least 2.9 percent.

Friday's moves come after U.S. central bank surprised investors by adopting a sharp dovish stance on Wednesday, projecting no further interest rate hikes this year and ending its balance sheet roll-offs, but the reasons behind it caused some concern. The Fed justified its dovishness by cutting its U.S. economic growth outlook for 2019.

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“Maybe one should think about the global economy and not pin everything on the Fed,” Jeffrey Gundlach, CEO of Doubleline Capital, told CNBC’s Scott Wapner. “Except the Fed should operate in consideration of global conditions too.”

Friday saw more weak economic data from around the world that added to the concerns.

IHS Markit said manufacturing activity in Germany dropped to its lowest level in more than six years in March. In France, manufacturing and services slowed down to their lowest levels in three months and two months, respectively. For the euro zone as a whole, manufacturing fell to its lowest level since April 2013. These data sent the German 10-year bund yield to their lowest level since 2016, briefly dipping into negative territory.

“The indicators are stacking up to suggest that this is not a 2021 phenomenon, that we could actually see the possibility of a recession starting maybe later this year,” Liz Ann Sonders, chief investment strategist at Charles Schwab, told CNBC’s “Closing Bell. ”

Nike shares also pressured stocks. The athletic apparel company’s stock fell 6.1 percent on the back of weak quarterly sales growth in North America.

Boeing shares also dropped 2.8 percent after Indonesian airline Garuda canceled a $6 billion order for 49 Boeing 737 Max jets.

Despite the decline on Friday, stocks are still up sharply for the year. The S&P 500 and Nasdaq are up 11.7 percent and 15.2 percent, respectively. The Dow, meanwhile, has rallied 9.2 percent.

“Let’s not lose sight of the fact that we’ve had a nice rally over the last couple of weeks,” said JJ Kinahan, chief market strategist at TD Ameritrade. “Today is not a great day, but after a strong week or two you tend to get a bit of a sell-off.”

“Now, should you be cautious? Absolutely, because the slowdown worldwide is something people need to be cautious about.”

—CNBC’s Sam Meredith and Michelle Fox contributed to this report.

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