Stocks dropped sharply Wednesday after the bond market sent a recession signal and the German and Chinese economy reported weaker than expected economic data.

The Dow Jones Industrial Average dropped by more than 700 points by midday, falling by as much as 2.8 percent. The S&P 500 fell 2.6,  the Nasdaq Composite fell 2.9 percent, and the small-cap Russell 2000 fell by nearly 3 percent.

The declines more than erased the market rally on Tuesday that was triggered by the Trump administration unexpectedly saying it would suspend plans to impose some new tariffs on China. Some investors said the announcement created further uncertainty about the path of policy, discouraging investment in riskier assets. The move was widely seen as a sign President Trump had “blinked” in the trade standoff.

The German economy contracted in the second quarter, according to data released Monday. That raises the possibility that European economies could fall into recession. China’s industrial production rose by just 4.8 percent in July, lowering than expectations of 5.9 percent growth and much lower than June’s 6.3 percent.

The yield on the 10-year Treasury note fell below the 2-year rate. When that has happened in the past, it has typically been followed by a recession in the U.S. sometime over the following two-years. Typically, however, this so-called yield inversion comes when the Federal Reserve is raising short-term rates to fend off inflation, pushing them above long-term yields.

This time, the yield inversion has come about even though the Fed recently cut rates and is concerned inflation has been so low. Instead of short-term yields shooting up, the inversion was created by the long-term yields plunging.

Shares of Macy’s dived more than 14 percent on Wednesday after the company reported worse than expected quarterly results and lowered its outlook for future quarters.

Shares of the XLF exchange traded fund fell by more than 3 percent, reflecting the poor performance of bank stocks on Wednesday. Shares of Citigroup sank by 5 percent. Shares of Bank of America were down by 4.7 percent. Shares of J.P. Morgan Chase fell by 4 percent. Wells Fargo shares were down by 3.7 percent.

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