Stocks plunged Wednesday after a major economic indicator signaled a recession could be on the horizon. The spread between the 2-year and 10-year Treasury yields flipped for the first time since 2007, with the 2-year moving higher than the benchmark 10-year.
A flattening of the yield curve has been a reliable predictor of a recession for the last half century. Recessions occur on average 22 months after an inversion, according to data from Credit Suisse.
By the closing bell, the Dow Jones average was down 800.49 points or 3.05 percent, and the tech-heavy Nasdaq had given up 242.42 points, a loss of 3.02 percent.
As the market continued its slide during the afternoon, President Donald Trump was quick to lay blame on the Federal Reserve, especially Chairman Jerome Powell, while seeming to minimize the role of the trade war with China and the inverted yield curve.
But an inversion of the yield curve is an effect, rather than a cause.
The bond market is responding to increasing worries over slowing global growth. Just before Wednesday's inversion, a pair of overseas data points came out, the first showing industrial output in China had slowed to its lowest level in nearly two decades. At the same time, Germany's economy contracted with GDP going slightly negative for the second quarter. The world's fourth-largest economy, and the largest economy in Europe, is heavily reliant on exporters that are affected by the trade dispute between the U.S. and China ー not to mention worries that a Brexit contagion is going to spread across the continent.
But the U.S. economy appears to be firing on all cylinders ー with wages up, unemployment at a 50-year low, and inflation holding steady. Ryan Payne, president of Payne Capital Management, told Cheddar early Wednesday that those fundamentals signal to him that the fears of a coming recession may well be overblown.
"Americans are actually saving again," he said. "This is one of the strongest consumers, not overly leveraged, that I've seen in a long time. And I think that the markets and sentiment keep discounting how strong the U.S. consumer is."
For investors with a long view, "volatility is our friend," Payne said. "Retail investors don't make good decisions," he added, pointing to the flight to safety in bonds despite interest rates remaining low. That signals to him that equities are undervalued: "I'd be buying," he said. "When you see retail investors selling... that's probably a good sign."
Wednesday's selloff, following days of huge swings in the market, "makes me sleep better at night," Payne said, because it shows that investors are taking into account worrisome indicators. When the market keeps soaring despite gloomy signals, "that's when I stop sleeping."
Nvidia on Wednesday became the first public company to reach a market capitalization of $5 trillion. The ravenous appetite for the Silicon Valley company’s chips is the main reason that the company’s stock price has increased so rapidly since early 2023.
Chris Williamson, Chief Business Economist at S&P Global, breaks down September’s CPI print and inflation trends, explaining what it means for markets.
A big-screen adaptation of the anime “Chainsaw Man” has topped the North American box office, beating a Springsteen biopic and “Black Phone 2.” The movie earned $17.25 million in the U.S. and Canada this weekend. “Black Phone 2” fell to second place with $13 million. Two new releases, the rom-com “Regretting You” and “Springsteen — Deliver Me From Nowhere,” earned $12.85 million and $9.1 million, respectively. “Chainsaw Man – The Movie: Reze Arc” is based on the manga series about a demon hunter. It's another win for Sony-owned Crunchyroll, which also released a “Demon Slayer” film last month that debuted to a record $70 million.
The Federal Aviation Administration says flights departing for Los Angeles International Airport were halted briefly due to a staffing shortage at a Southern California air traffic facility. The FAA issued a temporary ground stop at one of the world’s busiest airports on Sunday morning soon after U.S. Transportation Secretary Sean Duffy predicted that travelers would see more flights delayed as the nation’s air traffic controllers work without pay during the federal government shutdown. The hold on planes taking off for LAX lasted an hour and 45 minutes and didn't appear to cause continued problems. The FAA said staffing shortages also delayed planes headed to Washington, Chicago and Newark, New Jersey on Sunday.
Boeing workers at three Midwest plants where military aircraft and weapons are developed have voted to reject the company’s latest contract offer and to continue a strike that started almost three months ago. The strike by about 3,200 machinists at the plants in the Missouri cities of St. Louis and St. Charles, and in Mascoutah, Illinois, is smaller in scale than a walkout last year by 33,000 Boeing workers who assemble commercial jetliners. The president of the International Association of Machinists says Sunday's outcome shows Boeing hasn't adequately addressed wages and retirement benefits. Boeing says Sunday's vote was close with 51% of union members opposing the revised offer.
The stunning indictment that led to the arrest of more than 30 people — including Miami Heat guard Terry Rozier and other NBA figures — has drawn new scrutiny of the booming business of sports betting in the U.S. The multibillion-dollar industry has made it easy for sports fans — and even some players — to wager on everything from the outcome of games to that of a single play with just a few taps of a cellphone. But regulating the rapidly-growing industry has proven to be a challenge. Professional sports leagues’ own role in promoting gambling has also raised eyebrows.
