Can we quarantine the stock market?
The major U.S. stock indexes were showing symptoms of being sick from the coronavirus on Friday. While in humans the virus shows up with coughing, fever, and shortness of breath, in stocks it apparently shows up as a 603 point, or 2 percent, drop in the Dow Jones Industrial Average, a 1.59 percent decline in the Nasdaq Composite, and a clammy 1.77 percent drop in the S&P 500. The Russell 2000 index of smaller companies was, perhaps surprisingly, down worse than its bigger brothers for a 2 percent decline.
It was the worse day for stocks since August but the bond market was also showing some troubling symptoms. Three month Treasury yields wound up above 10-year Treasury yields. Twos and fives were below both, but twos were above fives. It’s not so much an inverted yield curve as a frayed knot. The thirty-year Treasury yield slipped below 2 percent.
Investors had more stuck in their throats than the virus, of course. Growth is supposed to be rebounding around the world but on Friday we got the bad news that growth in the Eurozone was even slower than it looked in 2019, barely staying above water at 1.2 percent. Somehow we’re sure the wise fellows in expensive3 suits will find a way to blame it all on the trade war.
In the U.S. consumer spending and income gains softened a bit in December, although consumer sentiment seems to have washed its hands enough to have improved in January. Republicans, in particular, think the economy is going great–with the except of Joe Scarborough, apparently. But Joe told us he thinks Jimmy Carter’s economy was just terrific so we can probably put it down to a fever dream.
CORRECTION: The twos and fives are below the tens and 3 months, not above as originally misstated.