Concerns the U.S. government and health professionals have not dealt quickly or carefully enough with Ebola sent investors into bonds and added to the pressure on a stock market already slammed by global growth concerns.
A second Dallas health-care worker was diagnosed with Ebola, and the Centers for Disease Control revealed Wednesday that the worker traveled on a Frontier Airlines plane the day before the diagnosis.
"Obama has canceled a trip, and the CDC is making a statement. That has made people anxious. Confidence in Washington right now is not good. When it's a health-care issue, it affects all of us," said Ward McCarthy, chief financial economist at Jefferies.
"They should have gotten out in front of it, and now it looks like they're falling behind. That's having a negative effect on the way the stock market is trading and positive effect on the bond market."
A trio of weak data, showing a pullback in consumer spending, softer manufacturing and falling inflation, fueled selling in stocks early Wednesday on fears that the U.S. economy cannot hold the line against a global slowdown. Economists immediately slashed their U.S. GDP growth forecasts for the third quarter. Barclays and Credit Suisse said tracking GDP growth fell to 3 percent from 3.3 percent.
The Dow Jones industrial average plunged more than 350 points minutes after opening, then recovered more than half its losses before moving lower again with a more than 400 point decline in afternoon trading. The Dow was well off its lows heading into the market close. The S&P 500 index and the Nasdaq were also whipsawed, but the Russell 2000 headed into positive territory in the final hour.
Before the opening bell, the September retail sales report showed the first decline in eight months. Sales were down 0.3 percent, in large part due to fewer vehicle purchases and a decline in gasoline. Inflation data also disappointed with the producer price index for final demand decreasing 0.1 percent, versus expectations for a 0.1 percent increase.
The economic reports also confirmed some traders' views that the Fed will not move to hike interest rates in the middle of next year, as expected by many Wall Street economists. The 10-year Treasury yield fell below 2.0 percent in a slide that paralleled a slump in German bund yields.
"When people see a 10-year yield at 1.96, they freak out," said Peter Boockvar at Lindsey Group. "This is a panic. It's a panic out of stocks. It's a panic into Treasurys. Gold is higher. The dollar is getting hammered. There's a lot of cross currents here."
As Boockvar spoke in a phone interview before the market recovered its worst losses, the 10-year yield continued to slide to 1.86. The yield returned to 2 percent and fluctuated in midday trading.
"The bond market is doing what it does best. It's speculating on a future which may not happen. We got the double whammy today. We got some deflation fear. We got the consumers not only slowing purchases but they actually cut their purchases," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi.
The market had already been wavering on worries about Europe, where German bund yields fell to record lows. Greece was a source of concern, as its market plunged on concerns Athens will seek to exit the government bailout and try to go it alone.
"I think immediately you have to cut back (U.S. GDP growth expectations) a half percentage point to 2.5 based on retail sales," Rupkey said. "The consumer looks pretty dead in the water here. If it does reach 3.0 it's going to be due to the fact that goods are stacking up on store shelves due to an inventory overhang."