Dow Erases 600-Point Plunge But Macro Risks Threaten US Economy

Sam Bourgi @hsbourgi
August 7, 2019 15:33 UTC

The Dow and broader U.S. stock market executed a mammoth afternoon recovery on Wednesday to erase steep morning losses, even as global bond yields continued to unravel.

Dow Pares Losses; S&P 500, Nasdaq Flip Green

After plunging nearly 600 points, the Dow Jones Industrial Average had pared almost all of its losses by late afternoon. The blue-chip index was last down 21.37 points, or 0.08%, at 26,008.15.

Dow Jones Industrial Average reverses most of its nearly 600-point slump on Wednesday. | Source: Yahoo Finance.

The broad S&P 500 Index of large-cap stocks completely reversed its intraday slump and was last seen trading up 0.1% at 2,883.29. Consumer staples jumped 1%, and materials added 0.8% as a sector. Gains in these categories offset sharp declines in financials and energy companies.

The Nasdaq Composite Index advanced 0.37% to 7,861.92.

U.S. Economy to Weaken Further in Q3

The U.S. economy might not be able to stave off the looming recession for much longer. | Source: Drew Angerer / Getty Images / AFP

The U.S. economy has avoided recession under President Trump, but the bond markets suggest that a major economic downturn may be inevitable.

As it now stands, hopes of an amicable resolution to the U.S.-China trade war have all but evaporated following the latest tit-for-tat between Washington and Beijing. In the context of a weakening global economy, the trade hostilities have pushed bond yields to unprecedented lows.

On Wednesday, the yield on the 10-year U.S. Treasury fell 7 basis points to 1.668%, the lowest in almost three years. Yields fall as bond prices rise.

U.S. 10-year Treasury yield has been in free-fall since November 2018. | Source: CNBC.

Now, the Atlanta Federal Reserve is warning that the nation’s economic expansion will weaken further in the third quarter. According to the latest GDP tracker, the U.S. economy is on pace to grow just 1.9% annually between July and September, down from 2.1% in the second quarter. The pace of the expansion avoids recession for now, but it leaves the United States vulnerable to significant macro risks.

Nowhere is this more apparent than in manufacturing – a sector that narrowly avoided contracting in July. The IHS Markit manufacturing purchasing managers’ index (PMI) came in at 50.0 last month, but its sub-index of factory output plunged to 48.9, a 119-month low.

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

Sam Bourgi @hsbourgi

Financial Editor to CCN Markets, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi. Sam is based in Ontario, Canada and can be contacted at sam.bourgi@ccn.com