Wall Street took a battering on Wednesday, suffering its worst day so far this year after movements in the bond market signaled the sharpest indication yet of an approaching recession.

The Dow Jones Industrial Average, which had already shed 400 points at the opening bell, spent the day in freefall before closing with a decline of 800 points, a drop of over 3 percent. The S&P 500 closed down 2.93 percent, and the Nasdaq posted a decline of just over 3 percent.

The market selloff was the result of an inverted yield curve in government bonds, when the yield on the benchmark 10-year Treasury note falls below the 2-year rate — a phenomenon that has preceded every recession for the past 50 years.

..Spread is way too much as other countries say THANK YOU to clueless Jay Powell and the Federal Reserve. Germany, and many others, are playing the game! CRAZY INVERTED YIELD CURVE! We should easily be reaping big Rewards & Gains, but the Fed is holding us back. We will Win! — Donald J. Trump (@realDonaldTrump) August 14, 2019

President Donald Trump blamed the Federal Reserve for Wednesday's market plunge, calling Fed Chairman Jerome Powell “clueless” in an afternoon tweet. Trump has consistently lambasted Powell for not cutting rates at a faster pace, and has said "the stock market would be 10,000 points higher" if the Fed had followed a different strategy.

"Spread is way too much as other countries say THANK YOU to clueless Jay Powell and Federal Reserve," President Donald Trump tweeted on Wednesday afternoon. "Germany, and many others, are playing the game! CRAZY INVERTED YIELD CURVE! We should easily be reaping big Rewards & Gains, but the Fed is holding us back. We will Win!" Trump added.

The yield curve marks the difference between how much it costs to borrow over the short term versus the long term. Banks borrow money at a lower short-term rate and then offer those funds to borrowers at a higher rate. When that dynamic is thrown off, it means less profit for banks, leading to tighter lending — and that, in turn, means companies can put their spending plans on hold, freeze hiring, or even lead to layoffs.

While the time frame from yield curve inversion to recession can vary — it has taken anywhere from two to six quarters after an inversion for a recession to occur — all of the past recessions have been preceded by inversions of the yield curve.

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“It’s a dangerous and upsetting harbinger of the future of the economy,” said Dan North, chief economist at Euler Hermes North America, when the curve flattened out earlier this year. “Typically, when the yield curve inverts for even a short period of time, we enter a recession about a year later,” he said.

New economic data released Wednesday showed sluggish growth in China and Germany, underscoring the effects of Trump's ongoing trade war, the unresolved crisis around Brexit, and other geopolitical tensions.