U.S. markets and stock ETFs tumbled Friday after weak manufacturing data out of the U.S. and Europe fueled safe haven bets and triggered a yield-curve inversion, a recession indicator that stoked fears among investors.
On Friday, the Invesco QQQ Trust (NASDAQ: QQQ) fell 1.8%, SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) declined 1.5% and SPDR S&P 500 ETF (NYSEArca: SPY) dropped 1.6%.
According to IHS Markit data, U.S. manufacturing activity experienced its slowest growth since June 2017, Reuters reports.
Meanwhile, German manufacturing also further contracted in March, hitting its lowest reading since June 2013, while factory activity for the broader Eurozone appeared equally grim.
“Right now there are clearly enough signs to be cautious about a number of factors that can potentially cause an economic recession,” Randy Frederick, vice president of trading and derivatives for Charles Schwab, told Reuters. “It doesn’t guarantee it, but if multiple other pieces of data show the same thing then it just increases the chances.”
Further adding to the uncertainty, investors remained anxious over the outlook for trade talks as U.S. trade delegates head to Beijing next week in another round of talks. President Donald Trump, though, has assuaged markets, stating a final agreement with China “will probably happen.”
Nevertheless, the wall of worry contributed to increased safety plays as investors dove back into long-term Treasury bonds, which caused the spread between three-month Treasury bills and 10-year note yields to invert for the first time since 2007 – an inverted yield curve occurs when the yields on short-term debt exceeds those of later-dated debt, a widely noted leading indicator of a recession.
The flattening yield curve that has occurred in recent months and narrowing spread were interpreted as signals that the long-term confidence in the economy is declining, which would lead to an eventual economic contraction.
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