Ten-Year Yield Drops Below 2.4%, Stocks Fall

By Donato Paolo Mancini and Amrith Ramkumar

U.S. stocks fell Wednesday, sliding again alongside Treasury yields as worries lingered about the health of the global economy.

Although caution from the Federal Reserve and optimism about a U.S.-China trade agreement have supported the market recovery early in 2019, anxiety about slowing economic growth has stoked fresh volatility in recent sessions.

The Dow Jones Industrial Average was recently down 65 points, or 0.3%, at 25595 after opening slightly higher. The S&P 500 fell 0.4%. The benchmark equity gauge snapped a two-session losing streak Tuesday and has rebounded more than 11.5% so far this year. The tech-heavy Nasdaq shed 0.6%.

Stocks slid last week after a measure of the yield curve, the gap between short- and long-term Treasury yields, inverted for the first time in more than a decade.

U.S. Treasury yields, which fall as bond prices rise, slipped again Wednesday, with the 10-year Treasury yield dropping to 2.38% from 2.418% a day earlier. Tuesday's close marked its lowest since December 2017.

In the past, the 10-year Treasury yield falling below the 3-month yield has preceded recessions. But major indexes have also often risen for several months following such inversions, another factor muddying the economic backdrop after a stretch of mixed data and lockstep rallies in stocks and bonds.

"It's confusing because we're not fortunate enough to be in a global synchronization around the world when it comes to economic growth," said Megan Horneman, director of portfolio strategy at Verdence Capital Advisors. "That's causing a lot of inconsistencies and discrepancies across asset classes."

With economic growth expected to slow, nearly 75% of investors now expect the Fed to lower interest rates at least once in 2019, up from 34% a week earlier, CME Group data show.

"Everybody is talking about the yield inversion," said Mariann Montagne, a portfolio manager at Gradient Investments. "Based on history, we get another year and a half or so before recession."

However, a year and a half is a long time in markets, she said. "Successful trade talks [between the U.S. and China] could change that outlook. Agreements don't have to be perfect. Any progress whatsoever would help."

Talks between the world's two largest economies to resolve their monthslong tariff fight are set to continu e this week in Beijing and next week in Washington. Some investors are holding out hope that an agreement could boost the outlook for economic growth, easing some pressure on central banks around the world.

After the Fed lowered its 2019 U.S. economic growth forecasts last week and signaled it is now unlikely to raise rates at all this year, European Central Bank President Mario Draghi hinted Wednesday that the bank is starting to worry about negative interest rates, a controversial policy tool introduced almost five years ago.

The comments came after a fresh bout of policy stimulus announced by the ECB earlier this month to support the struggling eurozone economy.

Some analysts are wary that slowing economic growth will curtail earnings growth moving forward, limiting stock- market gains. Profit growth for S&P 500 companies is expected to slow this year and fall in the first quarter from a year earlier.

Southwest Airlines said Wednesday it expects lower sales in the current quarter as a result of 9,400 flight cancellations and tepid demand. Shares still added 1.5%.

Elsewhere in individual stocks, WellCare Health Plans surged 8.7% after health insurer Centene agreed to buy the company for around $15.3 billion. Centene shares fell 9/2%.

Home builder Lennar climbed 4.1% after it said the housing market slowdown has reversed course with mortgage rates falling.

European stocks edged lower, with the Stoxx Europe 600 falling 0.2%. Volatility in Turkish markets continued ahead of local elections later this week, with the Turkish lira falling against the dollar and the country's main stock index sliding more than 5%.

Earlier, Hong Kong's Hang Seng gained 0.6%, while Japan's Nikkei 225 slid 0.2%.

Write to Donato Paolo Mancini at donatopaolo.mancini@dowjones.com and Amrith Ramkumar at amrith.ramkumar@wsj.com

  (END) Dow Jones Newswires
  03-27-19 1342ET
  Copyright (c) 2019 Dow Jones & Company, Inc.

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