The U.S. economy has been hailed by market strategists as a humming engine that can lead the rest of the world. Investors aren't so sure.
Stocks are taking a beating as troubling indicators start to pile up, sending U.S. and Canadian benchmark indexes deeper under water in 2015.
Markets have been volatile for several months over concerns about the euro zone economy, falling commodity prices and shifting U.S. monetary policy.
But things turned particularly rough on Wednesday following a batch of unsettling developments, including weak U.S. retail sales and falling copper prices, rattling confidence even in the U.S. economy.
The S&P 500 fell 11.76 points or 0.6 per cent, closing at 2,011.27 and marking its fourth straight decline. For the year, it is down 2.3 per cent.
In Canada, the S&P/TSX composite index fell 102.7 points or 0.7 per cent, to 14,084.43. The index is down 3.8 per cent in 2015.
Stocks fell hard in Europe and Asia as well, as investors rushed to the safety of government bonds, driving down yields.
The yield on the 10-year U.S. Treasury bond fell as low as 1.8 per cent during the day, to its lowest level in more than 18 months. The yield on the 30-year bond fell to a record low.
The Canadian 10-year government bond yield touched a record low, according to Bloomberg, while yields in Germany and Switzerland also sank to new lows. As yields fall, bond prices rise.
Part of the concern among investors is that U.S. consumers appear far more reluctant to get out and spend, even as they save money on refuelling their cars with cheaper gasoline.
U.S. retail sales in December fell 0.9 per cent from the previous month, registering a far sharper drop than the 0.1-per-cent decline that economists had been expecting. After ignoring the impact of falling gasoline prices, retail sales still fell 0.4 per cent.
"U.S. households hoarded the money they were saving at the pumps in December rather than spending it," said Andrew Grantham, an economist at CIBC World Markets, in a note.
Any sign of weakness in the U.S. economy is particularly worrisome, given that it has become the world's one source of economic optimism with performance that stands apart from a slowdown in China and ongoing malaise in Europe and Japan.
Copper sent a similarly alarming message, falling 5.2 per cent in New York to its lowest level since 2009. Given that the metal is used in everything from home construction to tech devices, it can serve as a leading indicator for economic activity.
The World Bank cut its forecast for global growth this year to just 3 per cent, down from a previous estimate of 3.4 per cent, warning of weak global trade and potential volatility related to the prospect of rising interest rates in some developed markets.
The U.S. Federal Reserve has indicated that it will likely raise its key interest rate later this year as it begins to remove the extraordinary stimulus that has helped revive the U.S. economy and send the unemployment rate down to its lowest level since 2008.
The Fed's key rate has been parked at zero per cent since 2008.
Robert Kavcic, senior economist at BMO Nesbitt Burns, said the market is likely responding to stretched valuations and overly bullish sentiment on the part of investors, rather than any long-lasting concern over a one-month dip in U.S. retail sales.
"I think the fundamentals in the U.S. are much too strong to believe in one bad piece of data," he said.
David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, argued that the market is in a "corrective phase," but pointed out that the economic backdrop is hardly a reason for concern.
In the euro zone, more economic stimulus is coming; in Japan, corporate tax rates will come down; and in China, authorities have the financial resources to keep growth in the mid-single-digits.
"Tack on the U.S. and we have global growth at 3 per cent, which is exactly where it was in 1986 – when we also had a collapse in the oil price of similar magnitude," he said in a note.