The chorus of market bears is getting louder. That much was clear Wednesday, when the Dow fell 800 points, its biggest drop of the year. Investors took worrisome economic data out of Germany and China, coupled with a recession signal in the bond market, as compelling reasons to bail out of stocks.
But bulls could take the reins once again. As Brian Belski, chief investment strategist at BMO Capital Markets, told me: "A one-day yield curve inversion does not a recession make."
Recession fears have been stoked by the plummeting yield on the 10-year Treasury bond, which fell below that of a 2-year Treasury bond for the first time since 2007. That signals major concerns about the prospects for long-term US economic growth.
Belski told me that for him to see the yield curve as a recession warning, it would need to stay inverted for weeks or even months. For now, he predicts stocks will be resilient. After all, he points out, we've repeatedly seen markets rebound after recent scares.
The strongest case for the bulls is that while the rest of the world is on edge, America is doing just fine. There's certainly some truth to that.
"The economy itself is still doing relatively well," Allianz chief economic adviser Mohamed El-Erian said on CNN's "Markets Now."
As El-Erian points out: Job creation remains strong. Wages are going up. And balance sheets for most US businesses still look solid.
That doesn't mean the bond market isn't worth watching. The yield on the 30-year US Treasuries fell below 2% for the first-time ever on Thursday, indicating that investors are piling into the safest long-term debt they can find.
At some point, all the anxiety can create a self-fulfilling prophecy.
"The only way you can end up in a recession in the US is either a self-fulfilling negative expectation, or we get a policy mistake or market accident," El-Erian said.
Investor insight: Fresh data on US retail sales and industrial production Thursday could support the argument that US fundamentals remain strong. Walmart earnings could also move markets.
What will Walmart say about the trade war?
A dismal batch of earnings at Macy's drove shares down 13% on Wednesday. Walmart now has a chance to show that problems in retail aren't hitting everyone, and that it's among the winners.
Wall Street analysts expect sales to be flat at Walmart compared to a year ago. But the company could get a boost if it shows it's making strides to bolster online sales.
The company has done a better job lately at keeping up with Amazon. Last quarter, digital sales rose 37% — a slowdown compared to the previous three quarters, but still impressive.
On the radar: Investors will listen closely to what Walmart has to say about the trade war. Last quarter, the company warned that "increased tariffs will lead to increased prices."
The big question: Does President Donald Trump's decision to delay tariffs on cell phones, toys and video games until December provide any relief?
Stock buybacks could fall this year
The stock buyback boom may be winding down, if just a little. JPMorgan data reported here for the first time show that buybacks likely peaked in 2018, when companies repurchased $939 billion in shares.
So far this year, companies have announced $465 billion in buybacks, according to the bank. That's slightly behind the pace set in 2018, but still above the three-year average.
A slowdown is unlikely to tamp down the heated political debate on buybacks in Washington. Critics argue that companies should spend excess cash on investments that support the broader economy, instead of just boosting share prices.
Joyce Chang, chair of global research at JPMorgan, says "some of the corporate governance issues around buybacks are worthy of scrutiny." But the firm argues that buybacks should not be restricted altogether.
"When capital is returned to shareholders via buybacks, investors reinvest this capital elsewhere," said Jan Loeys, the bank's head of long-term strategy.
Remember: The pace of buybacks may slow, but the frenzy sparked by tax cuts and cheap borrowing won't end any time soon. For the first time since the financial crisis, companies are returning more cash to shareholders than they're generating in free cash flow.