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Two hours after its opening, the Dow Jones rose from 25,854 to 25,599 points, a drop of 250 points, which represents a sharp drop in the short term.
Backed by solid fundamentals, notable progress in US-China trade negotiations, and the Federal Reserve's decision to keep its key rate unchanged, the Dow was on track for a solid week.
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Yet on Friday, the Dow Jones collapsed and lost 450 points from its peak to its lowest point of the day. The S & P 500 is on its way to its worst performance in a day since January.
What is causing the Dow's collapse?
When returns on Treasury securities become negative, investors generally view it as an indicator of recession.
On Friday, the yield curve of the three-month and ten-year Treasury bills is reversed for the first time in more than twelve years, according to a report by Bloomberg.
Ed Keon, chief investment strategist at QMA, said reversing the Treasury yield curve was not a positive indicator of the US economy.
He explained:
The historical reversal has not been a good sign for the pursuit of the economy. But there are deeper problems that we do not fully understand and with which the markets are struggling. These are not just cyclical signs that a flatter yield curve tends to be a sign of weaker economic growth, but also of secular change that has resulted in remarkably low rates worldwide in all regions of the world. developed nations.
The reversal of the Treasury yield curve, in synergy with fears of a global economic slowdown caused by the publication of weak euro area economic data, would have triggered declines in Dow Jones and S & P.
BREAKING
* INVERSIONS OF THE CURVE OF THE 3M-10Y CASH FOR THE FIRST TIME SINCE 2007https: //t.co/J7l9SZs9M1 pic.twitter.com/txSAbUwUP5
– Joe Weisenthal (@TheStalwart) March 22, 2019
Earlier, market strategist Russell Napier said the fall of the euro and the slowdown in the eurozone economy could cause the global market to stumble.
At the time, Napier had expressly warned against the performance of Germany and Italy, while fears of a real recession were emerging.
"The main consequence of this collapse will be the destruction of the euro. The expected success of the far right and the far left in the European Legislative Elections of last May heralds the beginning of the end of the monetary union. Both extremes share a commitment to the return of the sovereignty of their parliaments incompatible with a single currency, "he wrote.
This week, FT said investors were concerned about data from Germany, as their 10-year bonds fell below zero, suggesting that investment firms could experience stability losses in the coming months. extreme volatility.
As such, Jon Hill, BMO Capital Markets' interest rate strategist, told FT that the global economy is likely to retreat in the foreseeable future.
"We will not go into recession in the next quarter, but we're getting pretty close to the end of this cycle. It's a very precarious position right now for the global economy, "he said.
Will Dow continue to suffer?
Several strategists are still convinced that simpler factors prevent the Dow Jones from surpbading the 26,000 mark, such as investors judging the shares too expensive to buy at the moment, but others remain optimistic about fundamentals. market.
According to the WSJ, sales of existing homes in the United States rose 11.8% in February, following reports of increased consumer confidence, sales and productivity.
Lawrence Yun, chief economist at the National Association of Realtors, said the unexpected rise in home sales signaled a "strong recovery."
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