Stocks Tumble, Recession in the Near Future

Recession fears continue to loom.  After gaining nearly 400 points yesterday after Trump delayed his newest tariff until after Christmas to soften the hardship on Christmas shoppers, the Dow tumbled 800 points today – this year’s largest one day fall.  The 10-year US treasury yield isn’t doing any better.  It, too, fell 8 basis points, causing alarm bells in economists’ ears to ring.  This bond has frequently been an indicator of recessions.  When the 10-year yield is lower than the 2-year yield, thus an inversion of bonds, has only occurred a small handful of times.  Each time it happened; we have seen a recession, on average about two years later.  Analysts believe, this time won’t be different. 

All thirty stocks that trade in the Dow Jones Industrial Average fell today.  Same with the S&P, dropping 85 points and the Nasdaq dropping 242 points.  All saw a loss of about 3%.  This is a dramatic reversal of the gains it saw yesterday.  Banking stocks fell the most today with some as much as 5%.  Bank of America fell 4.6% and Citigroup lost 5.3%.  The financial sector overall fell about 10%.

Globally, we are seeing a slow down as well – as indicted as the reason for the Fed to cut rates.  The current trade war with China is hurting their economy, showing only a growth of 4.8%, the weakest percent in growth in 17 years.  Unrest in Hong Kong with the continued protesting isn’t helping either.  Germany also isn’t faring well, growing slower quarter after quarter.  Being Europe’s largest economy, this is their sign of a recession. 

The last time we saw an inversion of the bond yields was in 2005.  Just two years later, we hit a recession.  Only time will tell when our recession will hit, but if history taught us anything, it’ll happen within the next two years.