Dow Drops 799 Points, As Topsy-Turvy Interest Rates Boost Recession Fears

Stock prices tumbled Tuesday amid investor fears about trade, wiping out the gains that followed the Trump administration's decision to delay higher tariffs on imports from China.

The Dow Jones Industrial Average dropped 799 points, losing 3.1 percent of its value, while the S&P 500 index fell 3.2 percent. The Nasdaq composite index plunged 3.8 percent.

In another worrisome sign for the economy, the interest rate on short-term U.S. Treasury securities actually rose above that of longer-term instruments.

The unusual phenomenon is known as an inversion of the yield curve, something that hasn't occurred since 2007. It often signals a slowing of growth and perhaps even a recession, economists believe.

"What investors are worried about is the near-term economy. They're worried that something pretty serious is going to go wrong within the next, say, six to 12 months, and that's going to tip the economy into recession," says Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities.

Stocks have been unusually volatile since the beginning of October, especially once-surefire technology shares. Major market indexes are barely up for the year.

The decline has been especially big for companies such as Boeing, down nearly 5 percent Tuesday, and Caterpillar, which lost nearly 7 percent, that export heavily and stand to be hurt by the China-U.S. tariff war.

Over the weekend, Trump agreed not to raise tariffs on Chinese imports for 90 days, to give the two countries time to resolve their differences. - Read More

Dow Drops 799 Points, As Topsy-Turvy Interest Rates Boost Recession Fears