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Recession Warnings Grow As Stocks Slide Following Weak Economic Data From China, Germany

Stocks fell sharply Wednesday after the bond market raised another warning flag on the economy.

The yield on the 10-year Treasury briefly dropped below the two-year Treasury’s yield Wednesday morning for the first time since 2007. The so-called inversion has correctly predicted many past recessions and is the loudest warning bell yet about a possible recession ahead.

Investors responded by dumping stocks, more than erasing gains from a rally the day before. The Dow Jones Industrial Average dropped more than 700 points in afternoon trading. Banks and tech stocks fell sharply, and retailers came under especially heavy selling pressure after Macy’s issued a dismal earnings report and cut its full-year forecast.

Volatility has returned to the markets in August amid rising tensions in the trade dispute between the U.S. and China. The S&P 500 is down more than 4% as investors fear a prolonged trade dispute could further weaken the global economy.

Traders tend to plow money into ultra-safe U.S. government bonds when they’re fearful of an economic slowdown, and that sends yields lower. When long-term yields fall enough, market watchers see it as a prediction that a recession could be on the way in a year or two. The yield on the 10-year Treasury has dropped from 2.02% on July 31 to below 1.60%. The 30-year Treasury yield also hit a record low Wednesday.

Economic data from two of the world’s biggest economies added to investors’ fears. European markets fell after Germany’s economy contracted 0.1% in the spring due to the global trade war and troubles in the auto industry. In China, the world’s second-largest economy, growth in factory output, retail spending and investment weakened in July.

“The bad news for global economies is stacking up much faster than most economists thought, so trying to keep up is exhausting,” Kevin Giddis, head of fixed income capital markets at Raymond James, wrote in a report.

The S&P 500 fell 2.7%, as of 3:00 p.m. Eastern time, giving back all of the prior day’s jump, which came after the U.S. delayed some of the tariffs threatened on Chinese imports.

The Dow sank 720 points, or 2.7%, to 25,559. The Nasdaq composite index lost 2.8%, while the Russell 2000 index of smaller company stocks lost 2.9%.

The losses come a day after stocks rallied when the Trump administration delayed tariffs on about $160 billion in Chinese goods that were set to take effect on Sept. 1.

While the market was falling Wednesday, President Donald Trump took to Twitter to again criticize the Federal Reserve for hampering the U.S. economy by raising rates “far too quickly” last year and not reversing its policy aggressively enough — the Fed cut its key rate by a quarter point last month. He also defended his trade policy, even though investors remain worried that the trade war between the world’s two largest economies may drag on through the 2020 U.S. election and cause more economic damage.

“We still see a substantial risk that the trade dispute will escalate further,” said Mark Haefele, global chief investment officer at UBS in a note to clients.

With bond yields falling, banks took heavy losses Wednesday. Lower bond yields are bad for banks because they force interest rates on mortgages and other loans lower, which results in lower profits for banks. Citigroup sank 5.1% and Bank of America gave up 5%.

Much of the market’s focus was on the U.S. yield curve, which has historically been one of the more reliable recession indicators. After briefly trading below the yield on the two-year Treasury earlier Wednesday, the yield on the 10-year Treasury was 1.58% in afternoon trading, even with the yield on the two-year.

Other parts of the yield curve have already inverted, beginning late last year. But each time, some market watchers cautioned not to make too much of it. Academics tend to pay the most attention to the spread between the three-month Treasury and the 10-year Treasury, which inverted in the spring. Traders often pay more attention to the two-year and 10-year spread.

Each of the last five times the two-year and 10-year Treasury yields have inverted, a recession has followed. The average amount of time is around 22 months, according to Raymond James’ Giddis. The last inversion of this part of the yield curve began in December 2005, two years before the Great Recession tore through the global economy.

The indicator isn’t perfect, though, and it’s given false signals in the past. Some market watchers also say the yield curve may be a less reliable indicator this time because technical factors may be distorting longer-term yields, such as negative bond yields abroad and the Federal Reserve’s holdings of $3.8 trillion in Treasurys and other investments on its balance sheet.

Macy’s plunged 11.4%, the sharpest loss in the S&P 500, after it slashed its profit forecast for the year. The retailer’s profit for the latest quarter fell far short of analysts’ forecasts as it was forced to slash prices on unsold merchandise. The grim results from Macy’s sent other retailers sharply lower, too. Nordstrom sank 10% and Kohl’s dropped 11%.

Energy stocks also sank sharply, hurt by another drop in the price of crude oil on worries that a weakening global economy will drag down demand. National Oilwell Varco slumped 7.4% and Schlumberger skidded 6.5%. The price of benchmark U.S. crude slid 3.9% to $54.88 per barrel. Brent crude, the international standard, lost 3.7% to $59.04.

Gold gained $13.70 to $1,515.90 per ounce, close to a six-year high. Investors also bid up shares in mining company Newmont Goldcorp 1.8%.

Overseas, Germany’s DAX dropped 2.3% following the weak German economic data. France’s CAC 40 fell 2.2%, and the FTSE 100 in London lost 1.7%.

In Asia, Japan’s Nikkei 225 rose 1%, the Kospi in South Korea gained 0.7% and the Hang Seng in Hong Kong added 0.1%.

AP Writer Pan Pylas and AP Business Writer Damian J. Troise contributed.

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Business World

Programs Work to Lure New Doctors to Rural Areas

On a field trip to the Birthplace of Country Music Museum, Ashish Bibireddy put on headphones and scrolled through a jukebox of music from an influential 1927 recording session.

Bibireddy and nine other medical students had already been biking and rafting on their visit to rural Appalachia organized by a nearby medical college. But it wasn’t just casual sightseeing; the tour was part of a concerted effort to attract a new generation of doctors to rural areas struggling with health care shortages.

The Quillen College of Medicine at East Tennessee State University is among a small group of medical schools across the U.S. with programs dedicated to bolstering the number of primary care doctors in rural communities.

The schools send students to live in small towns and train with rural doctors. Like Quillen, some also organize outings and cultural experiences to try to sell students on living there after they graduate.

Schools have taken students to a ranch to brand cattle, brought in an Appalachian story teller, and catered local delicacies to show students who may have never lived without the convenience of a Starbucks or Target what rural life offers.

“It’s a little sense of what the fun part of rural life can be,” said Dr. Dana King, chair of the family medicine department at West Virginia University School of Medicine, where students in the rural track go to a ski resort, visit a coal mine, and go whitewater rafting.

At the University of Colorado School of Medicine, students can meet with the mayor, police chief, or other leaders of rural communities and interview residents to learn about the town.

“We want to give the students an idea about what goes into the workings of a small community,” said Dr. Mark Deutchman, director of the school’s rural track.

Most of the more than 7,000 facilities, population groups, and areas in the U.S. facing a shortage of primary care physicians—often a patient’s first point of contact for treatment—are rural, according to the U.S. Department of Health and Human Services. They need nearly 4,000 additional physicians to close the gap.

Most of the students who came to Quillen did not grow up or attend school in rural areas, but all expressed an interest in working with underserved populations, rural programs coordinator Carolyn Sliger said.

The students spent three weeks with doctors in rural towns in eastern Tennessee and a week in June exploring the region. After the museum tour, they visited a war memorial with an eternal flame and hulking U.S. military attack helicopter. The group then headed to a rooftop bar overlooking Bristol, where the brick-lined main street straddles the Virginia-Tennessee state line.

Bibireddy, 23, grew up in suburban Edison, N.J., and attended the University of Central Florida medical college in Orlando. He never lived in a rural area but was impressed with what he saw of Appalachian life during the visit.

“The people here are genuinely caring,” he said.

He was inclined to work in a rural area after medical school but acknowledged that building relationships with a community as an outsider would be difficult.

Jason Soong, another medical student in the program, said he has “always known” that he wanted to live in a sparsely populated place with open space. Soong, 23, grew up in a Philadelphia suburb and attended California Northstate University College of Medicine outside Sacramento.

“Living out in a rural area, you can just go outside your door, and you have nature right there,” Soong said.

Katherine Schaffer and a few other students ended their day in Bristol around a patio table at a stylish downtown bakery.

Schaffer, 27, said she was excited to meet people who shared her interest in rural practice. Her medical school friends in Norfolk, Va. want to work in cities as specialists and worry they wouldn’t have a social life in a small town, she said.

“I think it’s very difficult in my medical school to find like-minded people,” she told the group.

Administrators of rural track medical school programs say their graduates go into rural practice at considerably higher rates than other doctors. But many of those students are already inclined to practice in a rural area, so the figures may exaggerate the programs’ success, said Dr. Randall Longenecker, associate project director for the Collaborative for Rural Primary care, Research, Education, and Practice.

“We skim the cream off the top,” said Longenecker, whose research has documented 39 accredited colleges of medicine and colleges of osteopathic medicine that have clearly delineated rural training tracks—about a fifth of U.S. medical schools.

For students from small towns, the programs can help maintain their enthusiasm for rural life, said Dr. Joseph Florence, director of rural programs at Quillen.

Florence said big city medical programs push students to become specialists and avoid primary care.

“They beat rural out of you by the time you leave,” he said. The rural track programs, on the other hand, give the students “a place to be rural and not only be accepted but be appreciated for it,” he said.

Dr. Darrin Nichols, 28, said the rural track program at West Virginia University School of Medicine confirmed his choice to practice near the West Virginia town of roughly 800 people where he grew up. He was struck by the camaraderie of coal miners he met during a trip organized by the school and said it reminded him of his own tight family bonds.

“I always wanted to stay near my family and practice in a community that had those types of relationships,” he said.

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