Bond Market Signals Recession, Hurting Stock Prices The stock market is hanging on for dear life as slowing global economies and the continuing trade war with China hurt investors' appetite for stocks.
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The BIZ Experiences Indexâ„¢ was down 3.03 percent in the last week with most of the losses coming on Wednesday -- the worst day of the year in the stock market. The Dow and S&P 500 indexes fell 2.91 percent and 2.89 percent in the last five trading sessions while the Nasdaq Composite index was down 3.39 percent.
U.S. Treasury bonds continue to be the favorite haven of skittish investors. The yield on the 10-year Treasury bond, which moves opposite to the bond's price, plummeted on Wednesday and briefly fell below the yield on the 2-year Treasury bond. Such an "inversion" of this part of the bond yield curve has been a reliable indicator of recessions in the past.
Overseas economies are looking particularly stretched. The Eurozone GDP grew by just 0.2 percent in the second quarter with Germany posting negative growth and industrial output in China slowed to its lowest level in seventeen years. Only the resilient U.S. consumer is helping sentiment in the markets as July retail sales reported this week were up a much better than expected 0.7 percent. Walmart, the world's biggest retailer, helped settle the market yesterday by handily beating estimates. The stock, one of the few on the BIZ Experiences Indexâ„¢ to post positive gains this week, was up 4.1 percent in the last five days.
Most of the stock market struggled. Consumer stocks were battered as expectations for a slowdown in the U.S. increased. Clothing-makers were particularly weak. L Brands was down 16.29 percent on the week and Gap Inc. fell 14.5 percent. Ralph Lauren Corp. and Under Armour Inc. were down 11.21 percent and 12.11 percent respectively.
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The two carmakers on the index, Tesla and Ford Motor Co., were down 9.42 percent and 6.88 percent respectively. Truck-maker PACCAR Inc. was down a more modest 3.4 percent. The plunge in interest rates has also hammered financial stocks. Capital One Financial fell 5.31 percent on the week and investment bank Jefferies Financial Group was down 8.12 percent. Fund companies Franklin Resources (-11.67 percent) and BlackRock (-5.83) were also down sharply.
The technology sector was generally down this week as hopes for a trade deal between the U.S. and China withered. TripAdvisor Inc. (-9.48), Netflix (-6.2 percent) and Twitter (-4.61) had the biggest losses in the sector. Software-maker Adobe Inc. was also down 4.63 percent. Chipmaker NVIDIA Corp. was down 3.73 percent through Thursday but up more than seven percent in early trading today after it reported better than expected results overnight.
This eleven-year bull market in stocks has proven remarkably resilient. However, with the global trade picture continuing to deteriorate and the bond market flashing a recession signal, stock prices will likely remain volatile.
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