The Dow pared losses Monday, while the broader U.S. stock market extended its slide after an inverted yield curve stoked fears of an impending recession for the world’s largest economy.
Dow Recovers; S&P 500, Nasdaq Continue Lower
All of Wall Street’s major indexes opened lower at the start of the week, reflecting a tepid pre-market session for Dow futures. Losses had moderated in the final hour of trading, with he Dow Jones Industrial Average reversing a loss of 130 points to finish slightly higher. The index climbed 14.51 points, or 0.1%, to 25,516.83.
Boeing Co (BA) was the Dow's top performer, gaining 2.4%. Caterpillar Inc. (CAT) climbed 1.3% and Microsoft Corp (MSFT) finished 0.7% higher.
The broad S&P 500 Index of large-cap stocks declined 0.1% to close at 2,798.36 after having been down by as much as 0.3%. Losses were largely concentrated in information technology and financials stocks.
The technology-focused Nasdaq Composite Index shed 0.1% to 7,637.54. It was down by as much as 0.8% earlier.
The Yield Curve Has Inverted
Stocks experienced a brutal selloff Friday after a closely-watched yield curve inverted for the first time in 12 years, sending a strong signal that the U.S. economy was heading toward recession. As Hacked reported Friday, the spread between the 3-month Treasury bill and 10-year note inverted for the first time since 2007 as investors piled into the perceived safety net of bonds.
The yield on the 10-year Treasury note fell as low as 2.42% on Friday, putting it below the yield on the three-month T-bill (2.455%). The spread between the two bond yields is the most closely watched by economists.
Under President Trump, the U.S. economy has managed to dodge recessionary headwinds to grow at its fastest rate in years. This included an annual growth clip of 4.2% in the second quarter of 2018, the fastest since the U.S. economy bounced back from the polar vortex in 2014.
Growth has stalled in recent quarters, falling as low as 2.6% annually in Q4. Though much better than most of its global counterparts, the U.S. economy is being pressured by a protracted trade war with China and a shaky manufacturing sector. Housing is also in the midst of a multi-year cool down due to affordability challenges and rising interest rates.