Home / Archive / Dow Fights Off 3rd Straight Loss as Bonds Trigger Recession Alarms

Dow Fights Off 3rd Straight Loss as Bonds Trigger Recession Alarms

Last Updated September 23, 2020 12:53 PM
Josiah Wilmoth
Last Updated September 23, 2020 12:53 PM

The Dow Jones scrambled to avoid a third straight loss as bond yields triggered a dangerous recession alarm, forcing investors to reckon with the argument that the stock market’s bull run is over – and has been since 2017.

Dow Seeks to Vanquish Losing Streak

Wall Street’s three major indices braced for declines during a dreary futures session, only to spike when the opening bell rang. The Dow Jones Industrial Average climbed 63.99 points or 0.25% to 25,961.7.

dow jones industrial average
The Dow recovered from a dreary pre-market session to rise during the morning trading hours. But will it be enough to fight off a third consecutive loss? | Source: Yahoo Finance

The S&P 500 rose 6.89 points or 0.24% to 2,889.98, and the Nasdaq jumped to 7,897.12 for an increase of 33.7 points or 0.43%.

S&P 500 Dividends Trump Bond Yields

The Dow and broader stock market climbed as Wall Street weathered a storm of geopolitical threats, ranging from Argentina’s populist uprising to Hong Kong’s increasingly violent anti-government protests.

Meanwhile, plunging bond yields have forced investors into a corner, as the flight to safe-haven assets has hiked bond prices dramatically.

According to the Wall Street Journal , 60% of S&P 500 stocks currently offer a higher dividend yield than the 10-Year US Treasury note. Thus, while equities might not be attractive, they’re increasingly the only game in town.

“This is a hard period for most investors to navigate through,” Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management, told the publication. “But stocks are supported by low bond yields as long as we don’t have a recession.”

The critical phrase, of course, is “as long as we don’t have a recession.” Unfortunately, a growing number of analysts believe that a recession is unavoidable.

Treasury Yields Flirt With Inversion

This morning, the main yield curve flirted with inversion as the yield on the benchmark 10-year US Treasury note slid within just three basis points of the yield on the 2-year Treasury. The yield curve has not been that flat since 2007.

The 10-year Treasury last traded at 1.652%, while the 2-year Treasury ticked up to 1.626%.

As CNBC notes, a main yield curve inversion has preceded every single recession  for the past four decades.

Morgan Stanley: Bull Market Ended Two Years Ago

But while stock market bears fear that a recession could vanquish the Dow Jones’ decade-long bull run, Morgan Stanley chief equity strategist Michael Wilson warned clients this week that global equities have actually been in a bear market for nearly two years.

morgan stanley, bear market stock analysis
Morgan Stanley says the global stock market has been bearish for almost two years. | Source: Morgan Stanley Research via ZeroHedge

“The bear,” Wilson said , “is alive and kicking.”

Click here for a real-time Dow Jones Industrial Average price chart.