Bond yields retreat amid worries about pace of U.S. growth
The Dow Jones Industrial Average fell nearly 800 points and bond yields plummeted as investors’ doubts over the U.S.-China trade truce renewed anxieties about the pace of economic growth.
Investors broadly retreated from stocks, with industrial stalwarts including Boeing and Caterpillar suffering steep losses. Apple and other technology companies also slid, pulling the Nasdaq Composite back more than 10% below its August high.
Waning enthusiasm for the 90-day tariff cease-fire struck over the weekend fueled the losses, several investors said, stirring worries that the continuing disagreement between the world’s two biggest economies could unravel economic growth in the U.S. and put additional pressure on Europe and Asia, which are already struggling.
Money managers said they received few panicked phone calls from investors, though more are shying away from risk, according to Matt Peden, chief investment officer of GuideStone Capital Management, due to building fears of an economic slowdown or worse—a recession.
More investors—including those at GuideStone, which manages $13.2 billion, and other money-management firms—are paring back their stock holdings and are moving that money into bonds or even cash to better preserve their capital.
“People are taking equity off the table and it’s accelerating,” said Mr. Peden, who advises a large number of retirees. “That’s probably wise where we are in the cycle.”
Marc Malek, a managing partner at trend follower Conquest Capital Group who is also selling stocks and buying bonds, says he is betting investors will continue dumping stocks in favor of U.S. government bonds, driving further volatility in the stock market.
%U.S. 10 Year Treasury Note U.S. 2 Year Treasury Note Aug. ’18 Oct. ’18Dec. ‘184.108.40.206.72.82.93.03.13.23.3
The pace and breadth of the selloff appears to suggest as much. The flight from stocks to bonds triggered several economic warning signals that precipitated the worst period of Tuesday’s selloff.
Early in the session, the yield curve flattened further, with yields on two and three-year notes rising above those of five-year debt, an event known as an inversion. Meanwhile, the gap between yields on the two- and 10-year U.S. Treasury notes narrowed to the slimmest mark since 2007.
Later on, the S&P 500 fell below its 200-day moving average, a key level of support that is closely followed by traders who sometimes use the metric to set stop-loss orders on stocks.
Another warning sign: a steep pullback in transportation stocks, which some analysts say is a bearish indicator of more volatility ahead. The Dow Jones Transportation Average declined 4.4%, as the 20-stock index of truckers, airliners and railroads fell more than its blue-chip counterpart, suggesting the blue-chip index will struggle to hit a new high.
“It’s certainly painful, days like today,” said Joseph Amato, chief investment officer at asset manager Neuberger Berman. “The hope for a market like this is that this is a readjustment of expectations, as opposed to a bottoming out.”
The Dow industrials tumbled 799 points, or 3.1%, to 25027, closing near their session lows. The S&P 500 fell 3.2%, while the tech-heavy Nasdaq Composite slid 3.8%.
As the year draws closer to a close, analysts are growing more bearish about prospects for 2019. Bank of America Merrill Lynch said in a report Tuesday that it expects the “bear market vibe” to continue into next year, with asset prices hitting lows in the first half of the year.
Among stocks, Boeing fell 4.9% as shares of the aerospace giant remained vulnerable to continuing trade tensions. Caterpillar, which also has swung widely on trade headlines, slid 6.9%.
Shares of Apple fell 4.4% to erase the iPhone maker’s gain through the past two days.
Bank stocks were also hard hit as investors’ worries of a recession and the strength of the economy grew, while the rise in short-term rates relative to long-term rates threaten to eat into lenders’ margins. The KBW Nasdaq index of big U.S. lenders fell nearly 5%.
Meanwhile, declines in FedEx and United Parcel Service exacerbated the decline among transport stocks after Morgan Stanley warned the companies will likely face challenges asAmazon.com builds out an air network to ship packages. Shares of both companies fell more than 6%.
Stocks outside the U.S. also notched losses, as a pullback among European tech stocks contributed to a 0.8% decline in the Stoxx Europe 600.
In Asia, Japan’s Nikkei fell 2.4% to snap a seven-session winning streak. The Shanghai Composite, however, rose 0.4%, while Hong Kong’s Hang Seng added 0.3%, extending both indexes’ run of gains to three straight sessions.
Source: WSJ By Michael Wursthorn and David Hodari