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Maybe the markets were not overreacting.

With the U.S. economy posting solid numbers last year, the alarming signals coming out of stock and bond markets seemed out of whack with the real world. President Donald Trump’s bellicose trade actions were a concern, of course, but hiring was strong and corporate earnings were surging.

But this week, companies have reported numbers that suggest investors were right to be worried about growth, not just overseas but also in the United States. Apple on Wednesday reduced its revenue expectations for the first time in 16 years, citing weak iPhone sales in China. Delta Air Lines said Thursday that a measure of its revenue would fall short of its forecasts. And the U.S. manufacturing sector slowed sharply last month, according to a closely-watched index.

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Selling in the stock market continued. The S&P 500 index closed down about 2.5 per cent, leaving it more than 16 per cent below the high it hit in September. But perhaps the most notable move was in the market for government bonds, where investors park their money in times of stress or when they expect the economy to slow. The yield on the 10-year Treasury note, which moves in the opposite direction to its price, fell to 2.56 per cent, the level it was at nearly a year ago.

“On days like today people say, ‘Crud, I’ve got to buy tons of bonds,’” said Jim Vogel, a fixed income strategist at FTN Financial. “That’s driven by a large change in sentiment.”

Important indicators still show the U.S. economy is growing at a decent clip. A measure of employment in the private sector in December, released Thursday, was higher than expected. And analysts estimated that employers added about 180,000 jobs in December ahead of the Labor Department’s monthly jobs release on Friday.

Still, companies and consumers are facing challenges that could make them more cautious about spending money. If they pull back, the economy will suffer. Apple’s warning provides strong evidence that the trade tensions with China are taking a toll. And if more indicators show the American economy stumbling, investors will become more convinced that the Federal Reserve’s recent interest rate increases are dampening activity.

In the coming weeks, scores of companies will report their fourth-quarter results. The White House appeared to be bracing for a torrent of bad news from corporate America.

Kevin Hassett, the chairman of the White House Council of Economic Advisers, on Thursday said many U.S. companies were likely to post disappointing sales figures until the United States strikes a trade deal with China. “It’s not going to be just Apple,” Hassett told CNN. “There are a heck of a lot of U.S. companies that have a lot of sales in China that are basically going to be watching their earnings be downgraded next year until we get a deal with China.”

Corporate profits – and stock prices – are highly sensitive to global economic weakness. Foreign sales accounted for 45 per cent of the revenues of companies in the S&P 500 stock index over the last five years.

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There are signs of Trump’s policies beginning to weigh on domestic demand, too. The Institute for Supply Management said Thursday that its index of manufacturing activity fell sharply in December, the largest one-month drop since the last recession.

The manufacturing index remained at 54.1 per cent, a healthy level consistent with other economic data generally showing that the economy remains in good shape. But the downward trend in manufacturing contributed to a growing sense of unease on Wall Street about the future of the long-running expansion.

“When it has seeped into the survey it probably means it’s three to five weeks old,” Vogel said.

Indeed, investors are so convinced trouble is coming that they are betting the Federal Reserve will abandon its plans to raise interest rates in 2019.

A more important indication of the Fed’s views could come Friday morning, when the Fed’s chairman, Jerome Powell, is scheduled to answer questions at a public appearance with his two immediate predecessors, Janet Yellen and Ben Bernanke.

“There’s a belief he’s willing to back off, but we haven’t seen that yet,” Mark Haefele, global chief investment officer at UBS Wealth Management, said, referring to Powell. “If the Fed hikes rates in March, it’ll be a mess.”

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Investors and corporate executives have experience with slowdowns in large overseas economies but they have not at the same time had to grapple with the effects of a trade war. In explaining Apple’s lowered sales forecast, the company’s chief executive, Tim Cook, said “the contraction in Greater China’s smartphone market has been particularly sharp.” Apple’s stock plunged nearly 10 per cent on Thursday, taking its market value down to around $675 billion, well below the $1.1 trillion it reached last year.

Delta’s stock finished the day down about 9 per cent.

And on Thursday an ominous event occurred in the government bond market. The yield on the 5-year Treasury note fell below that on the 3-month Treasury bill. When moves like this have happened in recent decades, and stayed in place for a while, a recession has followed.

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