Dow Careens Lower as Inverted Yield Curve Betrays Market Fear

Journalist:
August 27, 2019

The Dow and broader U.S. stock market turned lower in afternoon trading on Tuesday, as demand for haven investments continued to rise in the face of renewed China trade tensions.

Dow Turns Lower; S&P 500, Nasdaq Follow

All of Wall Street’s major indexes pivoted lower in the afternoon session, diverging from a solid pre-market for Dow futures. After rising by as much as 152 points, the Dow Jones Industrial Average eventually fell 120.93 points, or 0.5%, to 25,777.90.


The Dow shoots lower in afternoon trading. | Source: Yahoo Finance

The broad S&P 500 Index of large-cap stocks slipped 0.3% to 2,869.16, with losses concentrated in eight of 11 sectors. Financials stocks lost 0.7% to lead the market lower.

The technology-focused Nasdaq Composite Index edged down 0.3% to close at 7,826.95.

Key Yield Curve Remains Inverted

Gold and U.S. Treasurys advanced on Tuesday, as demand for haven assets continued to rise in the wake of renewed U.S.-China trade tensions.

Rising bond prices pushed the benchmark 10-year U.S. Treasury yield back below 1.5%. By comparison, the yield on the 2-year Treasury note is around 1.52%.

The yield on the 10-year Treasury bond (orange) has fallen below the yield on the 2-year Treasury note (blue). | Source: TradingView

This so-called inverted yield curve, which materialized earlier this month for the first time in over a decade, is a strong recession signal for the bond markets.

When the yield curve inverts, a recession usually follows 22 months later – at least, that’s been the case the last five times the 2-year yield has risen above the 10-year yield.

The U.S. economy is projected to grow 2.3% annually in the third quarter, according to the Atlanta Fed’s GDP tracker.

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

Last modified (UTC): August 27, 2019 23:05

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