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More weakness for European manufacturing.

Stocks tumble as bond market flashes recession signal

WT24 Desk

U.S. stocks fell Friday morning, after a downbeat round of macroeconomic data in Europe and the United States raised global growth fears, and as a closely watched measure of the yield curve inverted for the first time since 2007, triggering recession worries, according to Marketwatch.

What are indexes doing?
The Dow Jones Industrial Average DJIA, -1.17% fell 276 points, or 1.1%, to 25,680, while the S&P 500 index SPX, -1.18% was off 31 points, or 1.1%, to 2,824. The Nasdaq Composite index COMP, -1.51% declined 100 points, or 1.3%, to 7,739.

What’s driving the market?
Global growth concerns were brought to the fore earlier Friday, after a round of March purchasing-managers-index readings pointed to a further slowdown in activity across the eurozone.

Data firm IHS Markit said its composite purchasing managers index — a measure of activity in the manufacturing and services sector — fell to 51.3 in March from 51.9 in February versus economists’ expectations for a dip to 51.8. A reading above 50 indicates an increase in activity.

The data indicated a deepening contraction in manufacturing activity, with the region’s manufacturing PMI reading falling to 47.7 — a 71-month low — from 49.4 in February.

Those fears were compounded when Markit released its indexes for the U.S. manufacturing and services sector that also showed growth in both sectors slowing more than analysts had predicted.

As equities came under pressure investors bought bonds, forcing the spread between the 3-month Treasury bill and the 10-year note to invert for the first time since 2007. A so-called yield curve inversion, where the rate of longer-dated debt falls beneath its shorter-dated counterparts, is widely viewed as an accurate recession indicator, and the spread between three-month and 10-year yields is the most closely followed by economists.

Meanwhile, U.S.-China trade relations remained in the headlines, after President Trump said on Fox Business Network Friday morning that “I think we’re getting very close” to a trade deal with China. “That doesn’t mean we get there, but I think we’re getting very close.”

This comes just days after the president warned markets that tariffs on Chinese goods may remain “for a substantial period of time,” even after a trade deal is reached, to ensure Chinese compliance with its terms.

How did the benchmarks fare yesterday?
U.S. stocks had started Thursday’s session with a weaker tone, which analysts attributed in part to growth worries after the Federal Reserve signaled most policy makers expect no rate rises in 2019 and underlined continued concerns about the economic picture.

But equities soon erased losses to rally, with technology shares taking the lead. The Dow advanced 216.84 points, or 0.8%, to end at 25,962.51, for its biggest daily rise since Feb. 15, while the S&P 500 advanced 30.65 points, or 1.1%, to 2,854.88. The tech-heavy Nasdaq Composite rose 109.99 points, or 1.4%, to end at 7,838.96. The S&P and Nasdaq each saw their best one-day gains since March 11.

What are analysts saying?
“A series of worse than expected economic releases from Europe have sounded the alarm bell, not just for the bloc, but also the global economy, by providing further evidence of a world-wide slowdown in economic activity,” said David Cheetham, chief market analyst at XTB, in a note. “These industry surveys are keenly followed, and unlike employment or GDP figures they are commonly seen as leading indicators due to the nature of their composition which is heavily weighted to future expectations.”

Which stocks are worth watching?
Shares of Tiffany & Co. TIF, +3.18% rose 3%, after the luxury jewelry retailer reported fiscal-fourth quarter profits that beat Wall Street expectations, but missed forecasts for same-store sales growth.

Nike Inc. NKE, -5.11% shares fell 4.8%, even after the company reported fiscal third-quarter profits Thursday evening that beat analyst expectations and revenue that was in line with forecasts. The stock has risen 18.7% year-to-date.

Shares of Hibbett Sports Inc. HIBB, +25.78% rallied 31% Thursday morning, after the sporting-goods store operator reported same-store sales growth of 3.8%, versus the flat growth expected by analysts. The firm also issued guidance for the full 2020 fiscal year that surpassed forecasts.

GameStop Corp. stock rose 0.4%, after the videogame retailer announced late Thursday that retail veteran George Sherman would assume the chief executive officer role at the firm.

What data are in focus?
Growth of the U.S. manufacturing sector slowed to a 21-month low in March, according to the flash reading of IHS Markit’s purchasing manager’s index. The manufacturing index fell to 52.5 from 53 in February and below the 53.5 expected by economists, according to FactSet.

Services sector growth also slowed, from a reading of 56 in February to 54.8 in March, and below consensus projections of 56.3.

Existing home sales hit an 11-month high in February, the National Association of Realtors said Friday. New homes were sold at a seasonally-adjusted annual rate of 5.51 million, an 11.8% increase over the previous month.

U.S. wholesale inventories rose 1.2% in January after a revised estimate of a 1.1% increase in December, the Commerce Department said Friday.

At 2 p.m. the Treasury Department will announce the size of the federal budget deficit for the month of February.

What are other markets doing?
European equity markets remained lower, with the STOXX 600 Europe index SXXP, -1.09% off 0.4% and Germany’s DAX DAX, -1.15% off 0.3%.

Asian stock markets closed modestly higher, with Japan’s Nikkei, Hong Kong’s Hang Seng Index and China’s Shanghai Composite Index all edging higher Friday.

In commodities markets, crude oil prices CLK9, -2.25% were in retreat, while the price of gold GCJ9, +0.28% rose. The value of the U.S. dollar DXY, +0.39% meanwhile, edged higher Friday.

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