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.
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.
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%.
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.
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.
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.
“The bear,” Wilson said, “is alive and kicking.”
Last modified: September 23, 2020 12:53 PM