Photograph by Ian Dooley
The market is acting like a teenager, responding to every rumor about their crushes with pure emotion. Is it finally ready to grow up?
It looked as if the market was headed for another week of losses on Thursday, when the Dow tumbled 660.02 points, or 2.8%, after the Institute for Supply Management’s manufacturing index fell to 54.1 in December from 59.3 in November. That was its biggest drop since October 2008, though a reading above 50 indicates expansion. Still, the new-orders component—the one most correlated with future activity—dropped to 51.1, the weakest since 2016. If anything, it seemed to confirm market fears that a downturn is looming.
Then Friday arrived, and it looked as if all was right with the world again when the Dow surged 746.94 points, or 3.3%. President Donald Trump is reportedly sending a delegation to China for trade talks, while job creation in the U.S. in December was the strongest since February 2018. Even Federal Reserve Chairman Jerome Powell indicated he’s not dead set on raising interest rates this year. That was manna from heaven for a market that was busy pricing in a recession.
Those fears were reflected in the yield curve—the difference between the yields on shorter- and longer-term Treasuries—which has a solid history of predicting recessions when it inverts. An inversion came close to happening last week, before Friday’s good news helped the curve steepen again. More bad news could still cause it to invert, virtually guaranteeing a slowdown, but such an outcome is far from