Dow Extends Brutal Losing Streak as 10-Year Treasury Yield Plummets Below Critical Level
The Dow and broader U.S. stock market hastened their collapse on Friday, as President Trump took his trade war to Mexico in an attempt to stem the flow of illegal migrants from the country. The yield on the 10-year U.S. Treasury continued to plummet as traders cut ties to riskier assets.
Dow’s Six-Week Collapse
All of Wall Street’s major indexes headed for major losses in the final session of the week, amplifying the worst month of May in nine years. The Dow Jones Industrial Average closed near its session low, falling 354.84 points, or 1.4%, to 24,815.04.
With the decline, the Dow has extended its losing streak to six weeks, the longest stretch of consecutive losses in eight years. Over that period, the benchmark has declined more than 1,600 points.
The broader S&P 500 Index fell 1.3% to close at 2,752.06. Nine of 11 primary sectors booked losses, with communication services shouldering the biggest declines.
The technology-laden Nasdaq Composite Index closed down 1.5% at 7,453.15.
Trump’s Trade War Shifts South
President Donald Trump shocked investors late Thursday by announcing tariffs on Mexican imports, a move designed to pressure Mexico into addressing the flow of illegal immigrants to the United States.
Beginning June 10, Mexican imports to the United States will be slapped with a 5% duty.
On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied,..
— Donald J. Trump (@realDonaldTrump) May 30, 2019
The White House later indicated that tariffs would increase by an increment of five percentage points each month until the maximum 25% is reached in October.
Mexico is one of America’s largest trading partners. The flow of goods and services between the two countries totaled $671 billion in 2018, according to the Office of the United States Trade Representatives. The U.S. exported $299.1 billion worth of goods and services and imported $371.9 billion.
Bond Yields Plummet
U.S. Treasury yields continued to fall on Friday, underscoring investors’ fears about protectionism and its impact on global economic growth.
The benchmark 10-year U.S. Treasury yield reached a session low of 2.13% on Friday, a strong sign that government bonds are “extremely overbought,” according to Bespoke Investment co-founder Paul Hickey.
Based on Hickey’s assessment, yields have already crossed below the critical 2.20% threshold and are due for a recovery in the near future.
The benchmark yield is currently at 18-month lows but remains above the September 2017 low of 2.05%. In the bond markets, yields and prices have an inverse relationship.
“Right now, the sentiment towards this just being a permanent state of tension between China and the U.S. has reached an extreme,” Hickey said, referring to the ongoing tariff dispute between the world’s two largest superpowers.
Featured image courtesy of Shutterstock. Chart via Stockcharts.com.