Market rout: August 14, 2019
The yield curve inverted, warning investors that a recession is coming. That's worrying.
But there's some wackiness with this latest yield curve inversion, sending some mixed signals to investors, Mohamed El-Erian, chief economic adveriser at Allianz told CNN Business anchor Julia Chatterley on the "Markets Now" live show.
"We should be concerned about what's pushing yields down, and that is very weak economic data out of China and Germany," El-Erian said. "That is real: The global economy is weakening."
But he noted that the US economy remains healthy. The yield curve is also inverting because the Fed is lowering rates and the global economy is so weak compared to the United States.
We have to be careful about not over-interpreting signals about the US economy," El-Erian said. "This yield curve is distorted by what central banks are doing and worries about Europe."
Hold onto your hats. Stock market losses are accelerating.
- The Dow is now down 600 points
- The S&P 500 fell more than 2%
- The Nasdaq is down 2.4%.
Investors are rushing to safe havens: Bonds are soaring. Gold is up 1%.
It's that kind of day.
The department store's profit fell 48% during its spring quarter compared with the same period a year ago and it lowered its profit expectations for the remainder of the year. Macy's stock is down 45% for the year.
Shares of rival retailers also dropped sharply:
They all report earnings in the coming weeks.
Mortgage rates are lower than they've been in years, causing a tsunami of refinancing.
The average rate on a 30-year fixed rate mortgage fell to 3.93% last week for loans of $484,000 or less — the first time those loans have been below 4% in nearly three years, according to the Mortgage Bankers Association, the industry trade group. Rates are even lower on larger mortgages and on 15-year loans.
That sparked a 37% jump in the number of refinancing loans last week compared to the previous week, said the MBA. Compared to a year ago, the rate of refinancing has nearly tripled.
The Dow slid more than 400 points after the bond market, for the first time in over a decade, flashed a warning signal that has an eerily accurate track record for predicting recessions.
The 10-year Treasury bond yield fell near 1.6% Wednesday, dropping just below the yield of the 2-year Treasury bond. It marked the first time since 2007 that 10-year bond yields fell below 2-year yields, a phenomenon that has preceded every recession in the modern era.
US stocks fell as investors sold stock in companies and moved it into bonds.
- The Dow was about 1.5% lower
- The broader S&P 500 was down 1.5%
- The Nasdaq sank 1.6%
The bond market is flashing a big neon caution sign.
Yields on 2-year US Treasury bonds dipped below the yield on the US 10-year bond Wednesday morning. It was the first time the 10-year yield was below the 2-year yield since 2007 — just before the Great Recession. Both were hovering around 1.62%.
In another worrisome sign, the yield on the 30-Year US Treasury fell to a record low Wednesday of about 2.06%.
This is significant. When shorter-term rates are higher than longer-term bond yields, that is known as an inverted yield curve. The 3-month US Treasury already inverted versus the 10-year this spring.
Yield curve inversions have often preceded recessions and are a sign of just how nervous investors are about the immediate outlook for the economy. They are demanding higher rates for short-term loans, which is not normal.
Typically, investors expect to get paid a higher rate of return when they are lending money for a longer period of time, because the risks are higher.
WeWork's parent company, The We Company, publicly filed paperwork on Wednesday to raise $1 billion in an initial public offering.
The amount is a placeholder and will probably be substantially higher. It will trade under the ticker symbol "WE."
The company is moving forward with its plans to go public despite losing a staggering $1.9 billion last year, according to its IPO prospectus, an unprecedented amount for a company about to go public.
The We Company continued to burn through money this year. In the first half of 2019, the company lost $904 million, a roughly 25% increase from the same period in the prior year. But its business is growing fast too. Revenue roughly doubled to $1.5 billion in the first six months of the year.
Dow futures slid nearly 200 points Wednesday after the bond market, for the first time in over a decade, flashed a warning signal that has an eerily accurate track record for predicting recessions.
Here's what happened: The 10-year Treasury bond yield fell to 1.627% Wednesday morning, below the 1.632% yield of the 2-year Treasury bond. It marked the first time since 2007 that 10-year bond yields fell below 2-year yields.
CNN Business' Fear and Greed Index signaled investors were fearful: