Stocks tumbled again on the Dow Jones today as the long-running trade dispute between the U.S. and China intensified. Adding to the carnage, recession fears are being stoked by plunging 10-year bond yields, which again led to an inverted yield curve.
On Wednesday, 10-year Treasury yields slipped to the lowest levels in 20 months. At one point today, the yield difference between 3-month T-bills and 10-year Treasuries was -13.5. That led to an inverted yield curve, a scenario that has historically been a reliable recession indicator.
According to Barron’s: “There has only been two times in the last 60 years the yield curve has ‘inverted’ and a recession hasn’t followed,” writes Seaport Global’s Tom Digaloma. “Recession alert in next 12-18mos most likely scenario.”
Dow Jones Dogged … Again
At one juncture Wednesday, the Dow Jones Industrial Average was lower by as much as 1.5% while the S&P 500 and Nasdaq Composite traded down by as much as 1.1%. By the close of U.S. markets, the S&P 500 was able to trim that loss to about two-thirds of a percent and while the Dow pared its intraday loss as well, the blue-chip index closed down by almost 1%.
The SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA), the exchange-traded fund (ETF) tracker for the Dow, is now down 5% month-to-date and on Wednesday, pharmaceuticals giant Johnson & Johnson (NYSE:JNJ) was the worst offender in the Dow, shedding 4.2% on volume that was nearly triple the daily average as a trial in Oklahoma continued.
The state is accusing Johnson & Johnson of playing a role in the opioid crisis that has gripped the U.S. The Oklahoma trial is the first stemming from more than 2,000 suits filed by state and local governments around the U.S. against opioid makers and potentially opens Johnson & Johnson up to paying significant monetary damages. Entering Wednesday, shares of JNJ were the tenth-largest components in the Dow.
Oklahoma Attorney General Mike Hunter claims that “J&J helped cause the epidemic by marketing opioids as safe and effective for everyday pain while downplaying their addictive qualities,” according to Reuters.
Down almost 3% on above-average volume, Nike (NYSE:NKE) was the next-worst offender in the Dow Jones today. There was no company-specific news hampering Nike shares Wednesday, but the company is heavily dependent on foreign markets for the production of its shoes and apparel, indicating some investors may be applying a trade war assessment to the stock over the near-term.
Overall, 27 of the Dow’s 30 members closed lower today with nine of those names losing 1% or more.
While Wednesday’s market chatter revolved largely around the trade war with China and the inverted yield curve, there is the another issue investors should be mindful: a strengthening dollar.
The Invesco DB US Dollar Index Bullish Fund (NYSEARCA:UUP), the largest ETF tracking the dollar against other major currencies, is in rally mode and that could punish some export-heavy sectors.
“The Dollar Index, a measure of the greenback against some of its most traded developed market peers, closed at 98.2030 on April 25, the highest level since May 2017, as global economic weakness and relatively high U.S. interest rates boosted the relative attractiveness of the currency,” according to S&P Global Market Intelligence.
The research firm went to note some well-known consumer staples recently warned about the strong dollar on their first-quarter earnings calls. Consumer staples is the Dow’s sixth-largest sector weight and each of the index’s consumer staples names closed in the red on Wednesday.
As of this writing, Todd Shriber did not own any of the aforementioned securities.