Dow Swings 350 Points after Treasury Yields Trigger Recession Alarms

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March 27, 2019

By CCN.com: The Dow and broader U.S. stock market fluctuated wildly on Wednesday, as falling bond yields stoked fresh fears that a global economic slowdown would soon hit American shores.

Dow Whipsaws Through Wednesday Trading Session

The Dow Jones Industrial Average traded within a 353-point range on Wednesday, reflecting a tepid pre-market for U.S. stock futures. The blue-chip index settled down 32.14, or 0.1%, at 25,625.59. Walmart Inc. (WMT) and Chevron Corp (CVX) were the Dow’s biggest laggards.

The broad S&P 500 Index of large-cap stocks fell 0.5% to 2,805.37. Nine of 11 primary sectors were in the red, with healthcare leading the decline.

Meanwhile, the technology-focused Nasdaq Composite Index declined 0.6% to close at 7,643.38.

A measure of implied volatility known as the CBOE VIX reached a session high of 16.71 on a scale of 1-100 where 20-25 represents the historic average. It would later backtrack to settle at 15.17, having gained 3.3%.

Sliding Treasury Yields Pummel US Stocks

Is China’s economic slowdown America’s problem? Treasury yields seem to signal the affirmative. | Source: Shutterstock

Stock markets came under pressure Wednesday after U.S. Treasury yields fell to fresh 15-month lows. The yield on the benchmark 10-year Treasury note fell to 2.384% from 2.418% on Tuesday. Yields drop when bond prices rise.

On Friday, a closely-watched yield curve inverted for the first time in more than a decade, sending stock prices plunging. The yield on the U.S. 10-year Treasury note fell below the yield on the 3-month T-Bill, a rare occurrence that economists say is an accurate predictor of recession.

While the U.S. economy has outperformed its major counterparts overseas, a protracted downturn in places like Europe, China, and Japan could have adverse consequences back home. Key members of the Trump administration will travel to China this week to continue negotiating a new trade agreement that many believe can help avert a bigger slowdown.

Investors say mixed economic data have made it more difficult to gauge the trajectory of the U.S. economy. Earlier this month, the Labor Department reported the most significant slowdown in nonfarm payrolls in well over a year even as wages accelerated faster than expected. Inflationary pressures have also waned, and housing continues to struggle despite the renewed pause on interest rates.

Last modified (UTC): March 27, 2019 16:16