Why are stocks, bonds telling a different growth story?

People shift to conservative investments amid campaign


Stocks are at record highs, the job market is booming and fears about China’s deadly coronavirus have eased on Wall Street. The bond market, however, is again flashing a potential warning signal for the global economy. 

A sharp rally in Treasurys in recent weeks led parts of the U.S. yield curve to invert, a signal that is often a harbinger of a recession. An inverted yield curve happens when shorter-term bond yields climb above longer-term ones. Investors flocked to safe-haven assets like Treasurys recently on fears that the virus could hinder global growth, sending long-term yields lower.

That’s left some investors scratching their heads as the American consumer—the pillar of the U.S. economy—remains strong while the U.S. economy is in the midst of its longest expansion on record.

“It seems like the stock market is a step behind in realizing the potential for slowing growth in the coming months,” says Gregory Daco, chief U.S. economist at Oxford Economics. “In reality, very few people are exposed to the coronavirus in the U.S., yet the uncertainty of the outbreak and the potential ramifications it could have on the stock market would still have a direct consequence to average households.”

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Traders work on the floor of the New York Stock Exchange on Oct. 4, 2018 in New York City.

A tale of two markets

The stock and bond markets have been at odds with each other in recent months, telling two different stories about the outlook for growth ahead. The Dow Jones industrial average is trading at all-time highs, a sign that stock investors are pouring money into shares under the belief that the U.S. will shake off challenges from the virus if it’s contained.


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