Dow Leaps 280 Points But Bond Markets Scream ‘Recession!’

Sam Bourgi @hsbourgi
August 8, 2019 15:24 UTC

The Dow and broader U.S. stock market were in recovery mode on Thursday, as investors moved past China’s controlled devaluing of the yuan renminbi.

Despite the recovery, one doesn’t have to look very far to see systemic imbalances in the financial markets. From Germany to the United States, government bond yields are plunging, raising fresh warnings about the health of the global economy.

Dow Recovers; S&P 500, Nasdaq Follow

All of Wall Street’s major indexes printed gains on Thursday, as stocks continued to recover from their worst single-day slump of the year. The Dow Jones Industrial Average jumped 279.33 points, or 1.1%, to 26,286.40. The blue-chip index was up by as much as 348 points.

Dow Jones Industrial Average extends recovery on Thursday. | Source: Yahoo Finance.

The broad S&P 500 Index of large-cap stocks jumped 1.5% to 2,926.24. All 11 primary sectors booked solid gains, with information technology leading the pack. The sector rose 2% as a whole. Energy and consumer stocks also outperformed the benchmark, rising at least 1.9%.

The technology-focused Nasdaq Composite Index advanced 1.8% to 8,007.40.

Bond Volatility Roils Markets

U.S. Treasury yields rose on Thursday after plunging toward three-year lows earlier in the week. At just 1.731%, the yield on the U.S. 10-year Treasury note remains well below the key 2% level, which reflects growing uncertainty about the economy and challenges faced by central bankers in formulating monetary policy.

At the time of writing, the 2- and 10-year bond yields were inches away from inverting, a phenomenon that usually foretells recession. Although the inverted yield curve is no guarantee that a recession is coming, “it’s a harbinger of elevated recession risks,” according to Bank of America.

Across the Atlantic, in Germany, bond yields have tumbled to their lowest levels in history, with the 30-year Bund note turning negative for the first time. Now, the entire German yield curve is in negative territory.

Germany’s long-dated bond yields flip negative for the first time ever. | Source: Bloomberg.

Already near record lows, Germany’s benchmark 10-year bond yield could plunge to -0.8% by the end of 2019, according to HSBC.

The Eurozone’s largest member state has experienced a sharp downturn over the past 12 months, having only narrowly avoided recession in the latter half of 2018.

Click here for a real-time Dow Jones Industrial Average (DJIA) 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