US stocks drop
Stocks tumbled today as the bond market gave signals that in the past have preceded economic slowdowns. The Dow Jones industrial average lost more than 100 points.
The yield curve, the spread between the yields of short-term and long-term bonds, inverted for the first time in five years. That means short-term interest rates were higher than long-term interest rates.
Investors have been watching the yield curve closely because, in the past, inverted yield curves have preceded recessions.
But the bond market could be signalling no more than a harmless slowing in the economy, said Jon Brorson, head of growth equities at Neuberger Berman in Chicago.
“We’ve never seen a recession without the yield curve inverting, but the corollary is not true: Just because the yield curve inverts does not mean we’re going to have a recession,” he said.
Volume in equity markets was light, exaggerating the effect.
Today’s bond news was “an excuse to lock in some profits on a somewhat illiquid day,” Brorson said. “I wouldn’t be surprised if the market wakes up tomorrow and buys them (stocks) back again.”
The Dow Jones industrial average fell 105.50, or 0.97%, to 10,777.77.
Broader stock indicators also declined. The Standard & Poor’s 500 index fell 12.12, or 0.96%, to 1,256.54, and the Nasdaq composite index fell 22.53, or 1%, to 2,226.89.
