Stocks, Bond Yields Slide on Weak Economic Data
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What caused U.S. stock markets to tumble on Friday?
With your money briefing, I'm Charlie Turner in New York for The Wall Street Journal. U.S. stock markets came down with a big case of the jitters Friday. Stocks and bond yields tumbled after weak manufacturing data deepened investors' concerns about the health of the global economy. The selling picked up into the close with the Dow Jones Industrials falling 460 points to 25,502. The Nasdaq Composite lost 196 points, 2.5%. And the S&P 500 fell 54 points. For the week, the Dow fell one and a third percent. The Nasdaq dropped six-tenths percent. The S&P lost eight-tenths percent. Joining us is Wall Street Journal Markets reporter Akane Otani. Akane has mentioned there was some weak manufacturing reports, including one in the U.S.
Which weak manufacturing reports in the U.S. and Eurozone triggered investor concern?
and one in Germany as well, or in the Eurozone.
That's right. And it really confirmed, I think, for a lot of investors that the momentum in the Eurozone in particular is weakening. And while that doesn't necessarily mean that U.S. stocks are going to be affected on a one-to-one direct basis, investors here really care about what's going on in the Eurozone because, of course, we have a lot of multinationals. that make up the S&P 500. So when you see such a large region of the world suffering a decline in economic data, it's natural that at some point it's going to have a ripple effect. And I think that's what investors are really worried about at this point is if we're starting to see the beginning of a more prolonged downturn or if this is just sort of first quarter week soft patch.
There have been signs of a slowing economy, but that had not worried investors because central banks have indicated that they would back off plans to raise interest rates. But as you say, I guess investors are worried that this downturn will persist across the globe.
That's right. And I think more and more we're hearing this question of how far can central banks go? I mean, especially in the eurozone, rates on developed markets are quite low still. And so there's not that much more that the ECB can do, especially compared to the Federal Reserve. So there is this fear that maybe when the next downturn really starts happening, that central banks will be somewhat more limited with regards to the tools that they have, as opposed to, say, a decade ago when we were seeing the financial crisis erupt.
The weak manufacturing data sent bond yields tumbling across the globe. The yield on the 10-year Treasury is now at its low point for the year, 2.453%. Talk about all that.
Why investors care about bond yields? I mean, when we're thinking about borrowing costs across the economy, they're very often pegged to the benchmark bond yields. So, in this case, the 10-year U.S. Treasury yield. In Germany, the 10-year German Bund yield. And when we see these yields fall, it typically indicates that investors are losing confidence in future prospects for growth. And so, the steep slide that we saw at the end of the week really, I think, brought home that investors are taking these economic readings that we're getting and they are concerned this isn't necessarily something that they were expecting to see at the end of the week. And I think the fact that we're seeing bond yields puncture
In Germany's case, it went negative for the first time since October 2016. In the case of the 10-year U.S. Treasury yield, we're seeing the lowest settle since January 2018. I mean, those numbers really tell you the extent to which investors have become worried.
Talk about the significance of this, Akani. The spread between three-month and 10-year U.S. Treasuries fell to negative 0.03%.
Right. So that's what we call the yield curve, which is the spread between shorter term and the longer term treasuries. And in history, we've seen recession follow every single time that this curve has inverted. Or in other words, when the three month treasury has yielded more than the 10 year treasury. And that kind of makes sense because when you think about it, investors typically expect more of an investment on something that they're holding onto for 10 years as opposed to for three months.
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