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Dow drops 800 after bonds flash warning

August 14, 2019 10:42 PM

UPDATE:

The Dow Jones Industrial Average sank 800 points after the bond market flashed a warning sign about a possible recession for the first time since 2007.

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The yield on the 10-year Treasury briefly dropped below the two-year yield Wednesday, an ominous signal that has predicted past recessions.

Investors have been plowing money into long-term U.S. government bonds for months, sending yields sharply lower, as they anticipate slower economic growth.

Macy's plunged 13% after slashing its full-year profit forecast.

The Dow Jones Industrial Average fell 800 points, or 3%, to 25,479.

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The S&P 500 lost 85 points, or 2.9%, to 2,840. The Nasdaq lost 242 points, or 3%, 7,773.

Bond prices soared. The yield on the 10-year Treasury sank to 1.58% from 1.68% Tuesday, a big move.

“Usually what generates that is people think there's a recession coming up, so they go for safer longer-term assets like the 10-year Treasury,” said Tyler Schipper, an assistant professor of economics at the University of St. Thomas.

5 EYEWITNESS NEWS asked Schipper whether this is a predictor of a recession.

“I really like the word predictor because typically this has been a good predictor of upcoming recessions,” he said. “But not kind of an immediate predictor, and so what that could mean is a recession in six months, it could be a recession in a couple of years.”

According to Schipper, this does not mean people should immediately pull their money out of the stock market.

It’s also not unexpected.

“We've been in a really long expansion, so there is a recession coming at some point in the future,” Schipper said. “Saying that it's going to come in the next two years, I don’t necessarily think that's different from what people thought about before this inversion. Most economists probably would’ve said yes, it's likely there probably will be in a recession in the next two years.”

5 EYEWITNESS NEWS asked if it could be as serious as 2008.
 
“Hopefully not,” he said. “Recessions come in all shapes and forms. They can be really quick, they can be like the Great Recession, they can be like the Great Depression … there's a reason it has its own title, the Great Recession, it's historically different than a lot of recessions.”

He said it’s hard to predict how severe a recession will be before it hits.

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Credits

The Associated Press & Callan Gray

(Copyright 2019 - KSTP-TV, LLC A Hubbard Broadcasting Company

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