When that kind of ‘‘inversion’’ in bond yields occurs, economists fear it may signal a recession within the coming year. It has happened multiple times so far this year.
Investors have been weighing a mix of encouraging and discouraging economic reports as they keep an eye on unpredictable swings in the escalating US-China trade war.
‘‘If the bond market was saying that the economy is on OK footing then you wouldn’t see yields fall like they are,’’ said Willie Delwiche, investment strategist at Baird. ‘‘In many respects, equities are waking up to what’s happening in bonds.’’
The S&P 500 index fell 23.67 points, or 0.8 percent, to 2,802.39. The index had been up 0.5 percent earlier in the day.
The Dow Jones industrial average dropped 237.92 points, or 0.9 percent, to 25,347.77, after rising about 131 points earlier. The Nasdaq Composite dropped 29.66 points, or 0.4 percent, to 7,607.35. The Russell 2000 index of smaller companies gave up 10.09 points, or 0.7 percent, to 1,504.02.
Major stock indexes in Europe also declined.
US stocks headed higher in the early going Tuesday as the market reopened after Monday’s Memorial Day holiday. But indexes reversed course by midday and never recovered.
Trading has been choppy for several weeks as investors grapple with the possibility of a prolonged trade war. The dispute has interrupted a market rally that saw the S&P 500 recoup the fourth quarter’s sharp loss and hit a new high. The index is down 4.9 percent so far in May, though it’s still up 11.8 percent for the year.
On Tuesday, Morgan Stanley warned clients the stock market faces a lot more volatility because of weak economic data and the trade war. It also cautioned that those factors are increasing the risk the US economy could slide into a recession.
‘‘This isn’t just about the US and China,’’ said Brian Nick, chief investment strategist at Nuveen. ‘‘It’s about everybody sensing there is something to brace for.’’
The drop in yields accelerated last week, but it has been happening gradually since late last year, when the 10-year Treasury yield peaked at 3.2 percent.
The slide in bond yields held back gains for banks and other financial companies. Falling yields lead to lower interest rates on loans, which makes lending less profitable. Goldman Sachs Group slid 1.8 percent.
Health care, consumer staples, and industrial stocks also took heavy losses. UnitedHealth Group dropped 2.3 percent, Procter & Gamble slid 2.1 percent, and United Rentals closed 3 percent lower.
Communications services stocks bucked the broader market slide. Video game publisher Activision Blizzard led the sector, climbing 2.9 percent.
Some stocks had a good day.
Traders bid up shares in Total System Services 4.8 percent following the announcement the payments processor is being bought by Global Payments in a $21.5 billion deal — the third major acquisition in the payment technology sector this year. Global Payments shares lost 3 percent.
SeaWorld surged 16.6 percent after it announced a stock buyback and increased investment from a hedge fund.
Fiat Chrysler shares gave up an early gain, sliding 0.9 percent after the carmaker proposed a merger with France’s Renault. A combination would create the world’s third-largest automaker and reshape the industry. It would top General Motors’ production and trail Volkswagen’s and Toyota’s.
First American Financial fell 6.3 percent after a security lapse exposed bank account numbers and other sensitive information.
Energy futures ended mostly higher. Benchmark US crude gained 0.9 percent to settle at $59.14 a barrel. Brent crude, the international standard, was little changed at $70.11.
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