US stock market's slide is flashing a warning about the economy

The S&P 500 turned negative for the year, stoking fears that one of the longest bull markets in history could be at risk. PHOTO: AFP

NEW YORK (NYTIMES) - Unemployment in the United States is near lows not seen in half a century. The US economy is set for its best year since 2005. Large corporations are producing giant profits. Even wages are starting to rise.

And the stock markets are a mess.

The losses extended on Tuesday (Nov 20), as the S&P 500 turned negative for the year, stoking fears that one of the longest bull markets in history could be at risk.

The stock-market struggles may seem incongruous with a US economy that by many measures looks strong. But stocks often act as an early warning system, picking up subtle changes before they appear in the economic data.

In recent weeks, retail stocks have been hit over concerns of rising costs, a sign that the trade war may be starting to take a toll and that higher wages are cutting into profits. Commodities and the companies that depend on them have been pummeled by the prospect of weaker demand should the global economy slow. Five tech giants - Facebook, Amazon, Alphabet, Apple and Netflix - have shed more than US$800 billion in market value since the end of August.

The S&P 500 closed on Tuesday at 2,642, down 1.8 per cent. Other markets also flashed warnings, with oil dropping by 6.8 per cent, falling deeper into bear territory.

The sell-off doesn't mean the United States is headed into a recession. The stock market suffered several stumbles in recent years before climbing to new highs on the back of booming corporate profits and economic growth.

But the recent market drop could portend problems.

In 2018, a dose of fiscal stimulus, in the form of tax cuts, allowed the United States to shake off the growth worries in China, Europe and the rest of the world. It won't have the same potency next year, leaving the US economy and stocks more vulnerable to a range of risks, including a slowing global economy and continued rate increases by the Federal Reserve.

Trump, on Tuesday, pointed to the health of the economy and instead blamed the Fed for contributing to the sell-off. Trump has been critical of the rate increases, saying they undermine growth.

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