Dow Plunges 460 Points on Ominous Recession Signal; Bitcoin Extends Weekly Gain

The Dow and broader U.S. stock market plunged anew Friday after a closely-watched yield curve inverted for the first time in 12 years, a warning sign that the economy was barreling toward recession. The selloff on Wall Street was accompanied by a mild uptick in gold and bitcoin, assets that are commonly associated with haven demand during periods of macroeconomic instability.

Dow Plunges; S&P 500, Nasdaq Follow

All of Wall Street’s major indexes headed for big losses Friday, with the Dow Jones Industrial Average settling at daily lows. The blue-chip index plunged 460.19 points, or 1.8%, to close at 25,502.32.

Among the Dow’s 30 index members, 26 recorded declines. Shares of Nike Inc. (NKE) fell 6.2% following the release of disappointing quarterly results Thursday afternoon. Boeing Co (BA) suffered another brisk selloff amid reports that the FBI had joined a federal probe into the aerospace manufacturer.

The broad S&P 500 Index of large-cap companies dropped 1.9% to close at 2,800.71. Ten of 11 primary sectors joined the selloff, with materials falling 3%. Five additional sectors fell by at least 2%.

Steep losses in the technology sector triggered a steep drop for the Nasdaq Composite Index, which finished 2.5% lower at 7,642.67.

The sudden reversal Friday pulled the major indexes into negative territory for the week. It also triggered a big surge for the CBOE Volatility Index. The so-called “fear index” spiked 23% to 16.75, its highest in two weeks. The VIX and S&P 500 are inversely related about 75% of the time.

The Inverted Yield Curve

Stocks came under pressure Friday as investors piled into bonds, forcing the spread between the 3-month Treasury bill and the 10-year note to invert for the first time in more than a decade. This so-called yield curve inversion occurs when the rate of short-term debt exceeds its long-term counterparts. As MarketWatch notes, the spread between the 3-month Treasury and 10-year note is the most closely watched by analysts.

An inverted yield curve is considered an accurate recession indicator for the world’s largest economy. Although economic growth has accelerated under President Trump, the rate of expansion has cooled significantly in recent quarters. Earlier this month, the Department of Labor reported that nonfarm payrolls in February grew at their weakest pace in over a year even as unemployment fell and wage growth accelerated.

Gold and Bitcoin Rise

Precious metals and cryptocurrencies rose on Friday, as investors piled into the perceived safety of gold and non-correlated status of bitcoin.

Gold for June delivery climbed $5.10, or 0.4%, to $1,318.70 a troy ounce on the Comex division of the New York Mercantile Exchange. That was gold’s fourth consecutive advance and fifth in the last six days. The yellow metal is now trading at its highest level in nearly a month.

Bitcoin edged up 0.4% to $4,034.11, according to CoinMarketCap. The leading cryptocurrency by market cap has gained 1.9% over the past seven days and its return above $4,000 marks an important milestone for the bulls.

Unlike gold, which is correlated with monetary policy, interest rates and the dollar, bitcoin is said to exhibit unique price independence relative to other markets. This could make bitcoin an attractive investment option during periods of economic instability.

Trump on China Trade Deal: We’re Not There Yet

President Donald Trump told the Fox Business Network that a new trade agreement with China was getting closer but that there are no guarantees it will get done. That skepticism echoes earlier reports that China was reneging on some of its trade concessions.

“I think we’re getting very close” to a new trade deal with China, Trump told Fox. “That doesn’t mean we get there, but I think we’re getting very close.”

Trump will send his top trade brass to Beijing next week to meet with Vice Premier Liu He. China will then make a return trip to Washington, D.C. the following week to continue the negotiations. At this rate, both sides have targeted the end of April for a possible resolution.

Featured image courtesy of Shutterstock. Charts via Stockcharts.com, Barchart.com, CoinMarketCap.

Author:
Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi