Stocks lower as yield curve inverts | VailDaily.com
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Stocks lower as yield curve inverts

NEW YORK – Stocks stumbled Tuesday as the bond market gave signals that in the past have preceded economic slowdowns.The yield curve, the spread between the yields of short-term and long-term bonds, is inverted for the first time in five years. That means short-term interest rates are higher than long-term interest rates. Investors have been watching the yield curve closely because, in the past, inverted yield curves have preceded recessions.But the bond market could be signaling no more than a harmless slowing in the economy, said Jon Brorson, head of growth equities at Neuberger Berman in Chicago.”We’ve never seen a recession without the yield curve inverting, but the corollary is not true: Just because the yield curve inverts does not mean we’re going to have a recession,” he said.Volume in equity markets was light, exaggerating the effect.Tuesday’s bond news was “an excuse to lock in some profits on a somewhat illiquid day,” Brorson said. “I wouldn’t be surprised if the market wakes up tomorrow and buys them (stocks) back again.”The Dow Jones industrial average fell 86.04, or 0.79 percent, to 10,797.23.Broader stock indicators also declined. The Standard & Poor’s 500 index fell 9.79, or 0.77 percent, to 1,258.87, and the Nasdaq composite index fell 17.71, or 0.79 percent, to 2,231.71.The U.S. dollar was up against other major currencies in European trading. Gold prices were also higher.Crude oil futures fell. A barrel of light crude was quoted at $58.15, down 28 cents, in trading on the New York Mercantile Exchange.Bonds prices were higher, with the yield on the 10-year Treasury at 4.34, down from 4.37 percent late Friday. Yields on two-year bonds stayed close to the longer-term notes.Normally, lenders receive higher interest when they commit their money for a longer time. A surge in demand for short-term credit can flatten or invert the yield curve.The last time the yield curve was inverted was in 2000, Charles H. Blood Jr., senior financial markets analyst at Brown Brothers Harriman & Co. At the time, “it served its classic function of a warning,” he said.Investors have been watching for months as bonds’ long-term yields and short-term yields grew closer. “Although an inverted yield curve does not always imply an economic recession, it has predicted a profit recession 100 percent of the time,” Merrill Lynch’s North American Economist David R. Rosenberg said earlier this month.In company news, specialty retailers were mixed as investors waited for more details about holiday sales. Best Buy Co. Inc., the nation’s largest consumer electronics retailer, fell 42 cents to $43.88. Bed Bath & Beyond Inc., the largest retailer specializing in home furnishings, rose 7 cents to $36.61.Wal-Mart Stores Inc., the nation’s largest retailer, fell 64 cents to $47.70 after saying Saturday it sees U.S. comparable store sales for December, those from stores open at least a year, rising 2 percent to 4 percent, in line with earlier forecasts. Amazon.com Inc. fell 66 cents to $48.56 after it saw its best holiday season ever, with a record number of items shipped, the giant online retailer said.Online retailer Overstock.com Inc. fell $2.62, or 7.8 percent, to $31.02 after it said earnings would fall below earlier targets. “We’ve had a nice holiday season, just not as nice a season as we’ve had in the past or as I’d hoped for,” said Patrick Byrne, the company’s CEO, in a statement.Guidant Corp., a maker of pacemakers and heart defibrillators, fell $2.29 to $64.69 after it said it received a warning letter from the Food and Drug Administration about its manufacturing, research and sales center in St. Paul, Minn. The company also said Friday its results would fall below expectations. Earlier this month, Boston Scientific Corp. announced a $25 billion takeover offer for Guidant, after Johnson & Johnson lowered a previous bid for the company to $21.5 billion amid product recalls. Boston Scientific fell 69 cents to $25.15. J&J fell 68 cents to $60.43.The Russell 2000 index of smaller companies fell 8.15, or 1.19 percent, to 678.29.Decliners led advancers by more than 2 to 1 on the New York Stock Exchange, where volume was 877.39 million, up from 748.93 million Friday. U.S. equity markets were closed Monday for the Christmas holiday.Overseas, Japan’s Nikkei stock average fell 0.86 percent after hitting a five-year high Monday. Britain’s markets were closed for the Christmas holiday. Germany’s DAX index was up 0.48 percent and France’s CAC-40 was up 0.24 percent. —On the Net:New York Stock Exchange: http://www.nyse.comNasdaq Stock Market: http://www.nasdaq.com


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