- Dow Jones Industrial Average (DJIA) futures fell 500 points in overnight trading Thursday.
- At the same time, the bond market flashed the dreaded ‘recession warning’ as the yield curve briefly inverted.
- The yield curve inversion has infamously preceded almost every recession in modern history.
Global stock markets recoiled overnight with the Dow Jones Industrial Average (DJIA) shedding points . As coronavirus fears trigger a deeper selloff , a reliable recession indicator just flashed red.
During the overnight session, US Treasury bond yields briefly inverted . The – year yield dipped below the 3-month yield for the blink of an eye. Known as a ‘yield curve inversion’ this phenomenon has preceded every major recession.
As Bloomberg’s senior editor John Authers put it:
“Classic recession indicator.”
Dow Jones futures
contracts slumped as much as points overnight before settling around 0.5% lower.
and Nasdaq Composite futures fell 0. 93% and 0. % respectively. Yield curve inversion: recession indicator
This phenomenon isn’t just a niche trading signal. The Federal Reserve uses it to project the likelihood of recession. The Fed uses this yield curve as a “leading indictor” and tracks the monthly spread.
Based on this information, the Fed puts the probability of recession at (% in July) .
“To really forecast any chance of near-term recession I think I’d need to see more fundamental support from economic indicators, not just relying on the yield curve. ”
Coronavirus fears still grip the stock market
The rapid spread of China’s deadly coronavirus continues to dominate trading sentiment around the world. The outbreak has now killed and infected almost 8, , rattling global markets.
The World Health Organization (WHO) is now weighing the decision to declare an “international emergency.” Those two words could trigger a much deeper selloff as it would halt trade and tourism activity across the globe.
The WHO will meet today at . Geneva time to make a decision.
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