The bond market sent stocks tumbling on Friday after the 10-year and three-month Treasuries yield curve flipped negative. The other widely watched yield curve—the difference between 10-year and two-year Treasuries—has also touched its lowest point since June 2007. The inverted yield conditions set off recession fears once again taking down equities. Stocks were mostly indecisive throughout the week waffling between gains and losses. When the closing bell rang on Friday, the Dow fell 460 points or 1.8%. For the week, the average was negative by 1.34%. The S&P 500 closed lower by 0.8% and the Nasdaq Composite Index edged down 0.6%. Not surprisingly, safe-haven telecom stocks were positive at 1.6% as were utilities and consumer staples. Technology names were also in the plus column, but all other sectors were in the red, led by financials, which were off nearly 5%.
The Federal Reserve left interest rates unchanged and signaled that there may not be another short-term rate hike this year. Hence the drop in bank stocks. The Fed also revised down it growth projection to 2.1%, although Fed Chairman Powell said the economy was in a “good position”. Economic conditions in Europe, however, continue to worry traders. Manufacturing activity there fell more than expected in March to its lowest level in seven years sending German 10-year bond yields negative for the first time since 2016. A similar survey of U.S. manufacturers also disappointed. Crude oil prices moved higher on supply issues – not on future demand. And gold prices settled at $1,312 per ounce, up another $9.80.
In some respects, a selloff was probably overdue. Stocks have been rallying after the Federal Reserve shifted to the sidelines and on hopes for a trade deal with China. But recent indications are that tariffs may not be taken off the goods from China right away even if a trade accord is reached. The concerns about growth that boiled over on Friday have been close to the surface for some time. Despite the stock market’s poor performance this week, the selloff probably can be viewed as normal profit taking. The U.S. economy is still expected to pick up as the year moves along, but nothing is assured.
Here is the answer to last week’s trivia question Sandwich shop Arby’s is owned by privately-held Inspire Brands along with Rusty Taco, Buffalo Wild Wings and what other fast-food brand? Subway, Sonic, Quiznos or WhataBurger. Answer: Sonic.
Today’s Trivia Question: Ride sharing service Lyft will soon be going public. What is the approximate value of the company based on the number of new shares being offered, existing shares and the estimated IPO price? $8 billion, $12.3 billion, $18.5 billion or $22 billion.