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Stocks Tumble On Recession Warning

Jeremy Lutz - MarketClub

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Hello traders everywhere. Stocks fell sharply on Wednesday giving back all of Tuesday's gains after the U.S. bond market flashed a troubling signal about the U.S. economy. This move ignited fears that a recession may be on the horizon for the U.S. economy. 

The DOW was down more than 600 points and is down over -2.3%, meanwhile the S&P 500 slumped -2.3% and the Nasdaq sank -2.5% on the day.

The yield on the benchmark 10-year Treasury note Wednesday broke below the 2-year rate, an odd bond market phenomenon that has been a reliable indicator for economic recessions. Investors, worried about the state of the economy, rushed to long-term safe-haven assets, pushing the yield on the benchmark 30-year Treasury bond to a new record low on Wednesday.

There have been five inversions of the 2-year and 10-year yields since 1978, and all were precursors to a recession, but there is a significant lag, according to data from Credit Suisse. A recession occurred, on average, 22 months after the inversion, Credit Suisse shows. And the S&P 500 enjoyed average returns of 15% 18 months after an inversion before it eventually turns.

The last time this key part of the yield curve inverted was in December 2005, two years before the recession hit.

Key Levels To This Week:

S&P 500 (CME:SP500): 2,728.81
Dow (INDEX:DJI): 24,680.57
NASDAQ (NASDAQ:COMP): 7,292.22
U.S. Dollar (ICE:DX): 97.03
Gold (NYMEX_GC.Q19): 1,531.50
Crude Oil (NYMEX:CL.N19): 54.11
Bitcoin (BITCOIN:BITSTAMPUSD): 9,111.00

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