Market week: Yield curve inverts, markets slide

Indicator flashes recession warning

The inversion of the U.S. yield curve, for the first time since 2007, caused a round of market jitters that saw the major North American indices on Friday post some of their biggest single-day losses since December, and end the week in the red. The S&P 500 Composite Index fell 2.0% on Friday, while the Nasdaq Composite Index dropped 2.5%. Toronto’s S&P/TSX Composite Index fell 1.0% on the day.

Investor sentiment had already been souring following economic data suggesting slowing growth trends in both the eurozone and China. And key U.S. manufacturing indices have been signalling slowing growth in that sector as well. With the U.S. Federal Reserve displaying an increasingly dovish bias in its monetary policy speeches and announcements, investors crowded into the long end of the bond market, driving long-term yields down below short-term yields, causing a curve inversion. Such an inversion, if sustained, has in the past preceded a recession and consequent bear market in stocks. Hence investors’ anxieties last week.

The S&P 500 Composite Index fell 0.8% on the week, while the Nasdaq Composite Index dropped 0.6%. Toronto’s S&P/TSX Composite Index retreated a relatively modest 0.3%, supported by a 0.8% weekly gain in the price of crude oil, and a 0.8% weekly advance in the price of that ever-reliable crisis hedge, gold, which has been stealthily inching up and is now ahead 11% since its low of last October.

@FundLibrary – Follow Fund Library on Twitter for daily information and updates.

Disclaimer

© 2019 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.