Unless you’re someone who has studied the economy, you might not recognize the key warnings of a recession. And as these recession signals become clearer, the stock market is beginning to show signs of struggle.
Worst Day of the Year
On Wednesday, we saw the U.S. stock market at it’s worse in 2019. This was due to a couple of key indicators of a recession coming to light. Just in the past three weeks, The Dow Jones industrial has declined seven percent, 3 of which happened on this day.
Germany and the United Kingdom, two of the world’s largest economies, seem to be getting smaller. We’ve also seen growth slow in China due to a bitter trade feud with the United States. In addition to that, Argentina’s stock market fell nearly 50 percent earlier this week. The biggest problem yet? Our World Leaders are doing the exact opposite of what they should be doing. Unlike the Great Recession, they are attacking each other instead of working together to confront the problem.
President Trumps Response
Amidst the obvious signs of a looming recession, President Trump has been claiming the economy is still thriving. This is all while continuing his attack on Jerome H. Powell, the Federal Reserve Board Chair.
Inverted Yield Curve
The increased sale of stock was caused by an unusual development in the bond market. It’s something called an “inverted yield curve,” and it’s often a key indicator that a recession is looming.
So in case you’re wondering, an “inverted yield curve” is when the yields — the returns that companies payout to its stockholders — on short-term U.S. bonds eclipsed those of long-term bonds. This is due to so many investors losing confidence in the near-term prospects of the economy. So in short, the U.S. government now is paying more to attract buyers to its 2-year bond than its 10-year note.
This phenomenon, which suggests investor faith in the economy is faltering, has happened before literally every recession in the past 50 years.
“The stars are aligned across the curve that the economy is headed for a big fall,” said Chris Rupkey, chief financial economist at MUFG Union Bank. “The yield curves are all crying timber that a recession is almost a reality, and investors are tripping over themselves to get out of the way.”