US stocks, bond yield slump, signaling market jitters

Stocks turned broadly lower on Wall Street in afternoon trading Tuesday as investors shifted money into bonds, sending yields to their lowest level in nearly two years.

Surging demand for government bonds dragged the yield on the 10 year Treasury to 2.26%, its lowest level since September 2017. Rising bond prices are normally a sign that traders feel jittery about long-term growth prospects and would rather put their money into safer holdings.

Investors have been weighing a mix of encouraging and discouraging economic reports this year as they also keep an eye on unpredictable swings in the escalating trade war between the U.S. and China.

"If the bond market was saying that the economy is on OK footing then you wouldn't see yields fall like they are," said Willie Delwiche, investment strategist at Baird. "In many respects, equities are waking up to what's happening in bonds."

In a client note Tuesday, Morgan Stanley warned that the stock market faces a lot more volatility because of weak economic data and the trade war. It also cautioned that those factors are also increasing the risk that the U.S. economy could slide into a recession.

The slump in bond yields held back gains for banks and other financial companies. Falling yields lead to lower interest rates on loans, which makes lending less profitable. Goldman Sachs Group slid 1.1%.

Health care, consumer staples and financial stocks took some of the heaviest losses, offsetting gains in communications companies. Mylan skidded 6% and Kraft Heinz dropped 6.6%. DISH Network climbed 3.5%.

Payment processing and related companies gained ground after Global Payments said it would buy Total System Services for $21.5 billion. PayPal rose 1.7%.

The sell-off reversed Tuesday's early gains and put the market on track to...