Investors continue to flock to the safety of U.S. Treasury bonds as signs of a slumping U.S. economy accumulate.
Stock prices were down again yesterday with the Dow and S&P 500 indexes falling 0.93 percent and 0.84 percent respectively. The Nasdaq Composite index fell 0.39 percent while the Entrepreneur Index™ closed the day off 0.09 percent.
U.S. Treasury bond prices, on the other hand, jumped sharply, resulting in a six basis point drop in the yield on the 10-year Treasury bond. At 2.27 percent, the 10-year yield is the lowest it’s been in nearly two years and almost nine points below the return on the three-month Treasury bill. Morgan Stanley’s chief U.S. equity strategist Michael Wilson warned that it could be a sign of a looming recession. In a report released yesterday, he wrote that growing trade tensions and falling consumer and business confidence suggest that the U.S. economy could slow dramatically.
The investment bank lowered its estimate for second quarter GDP growth to 0.6 percent compared to 3.2 percent in the first quarter. Wilson also warned that the yield curve (which plots yields on U.S. debt against their duration) inverted last November and that a recession could be nearer than many expect. A yield curve inversion — when short-term interest rates are higher than long-term rates — often indicates a coming recession.
The technology sector was generally positive yesterday, though most gains were modest. Facebook (1.77 percent) and Adobe Systems Inc.(1.27 percent) had the biggest jumps in the sector. Chip-makers NVIDIA Corp. (-1.25 percent) and Analog Devices (-1.33 percent), both very sensitive to trade concerns, continued to slide. TripAdvisor Inc. was also down sharply, falling 2.25 percent.
Chipotle Mexican Grill was the only other stock on the Entrepreneur Index™ up by more than one percent yesterday, gaining 2.64 percent. Shares in the restaurant chain fell sharply last week after several analysts gave cautious outlooks on the company. Many suggested that African swine fever and rising meat prices could hurt Chipotle’s operating margins. The stock is one of the best performing on the Entrepreneur Index™ this year, up 57.5 percent.
Other gains on the index included Estee Lauder Companies (0.88 percent) and O’Reilly Auto Parts (0.67 percent).
J.M Smucker Company shares fell 2.38 percent. The food-maker has also been a strong performer this year, rising 32.3 percent. Retailer Bed Bath & Beyond, seen as vulnerable to the tariff battles between the U.S. and China, was down 2.6 percent. The shares were up dramatically in the first three months of the year, but have fallen more than thirty percent since April 10. For the year, they are now up 19.7 percent.
Other notable losses on the index included Capital One Financial (-2.24 percent), L Brands (-1.93 percent) and REITs Macerich Company (-2.35 percent) and Kimco Realty Corp. (-2.2 percent).
