When investors are confident in the economy, they demand higher bond rates, partly to offset the risk that sustained growth could produce inflation and dilute the bonds’ effective returns. For that reason, rates on long-term bonds are typically higher.

But on Wednesday, for the first time since 2007, yields on two-year Treasury notes briefly exceeded the interest rate on the benchmark 10-year note. This pattern, called an inverted yield curve, is frequently cited as a harbinger of recession, although it can take quite some time to be proved right.

Earnings growth, which has helped drive Wall Street’s remarkable gains in recent years, is also showing signs of petering out.

Second-quarter profits for companies in the S&P 500 are coming in 0.7 percent lower than a year ago, according to data from John Butters, the senior earnings analyst at FactSet. If that figure holds — and more than 90 percent of the companies in the index have reported — it will mark the second straight quarter in which profits have declined, something often referred to as an earnings recession.

The slide was most pronounced among companies with the greatest exposure to the global economy and trade. Earnings at American semiconductor manufacturers, which rely on production networks in China and generate much of their sales there, fell about 25 percent.



More troubling for investors, profits seem likely to remain lackluster for at least the rest of 2019. Stocks bounced back strongly this year, in part, on optimism that the United States and China would inch closer to a trade deal and that earnings would rebound in the second half. That hope has faded as the trade tensions have ratcheted up with no end in sight.

Although China’s economy is growing more quickly than that of many Western competitors, it has slowed measurably since the start of the trade conflict. Wednesday’s reading on Chinese industrial production was weaker than expected, with July’s growth rate at 4.8 percent, the lowest since 2002.