U.S. Stock Market Sell-off Continues as Futures Trade Sharply Lower

Investors are saying that increased algorithmic selling because of a phenomenon in the U.S. Treasury markets is causing the weakness. On Monday, when the selling started, the yield on the three-year Treasury note surpassed its five-year counterpart.
James Hyerczyk
Stock Market Turmoil
Stock Market Turmoil

U.S. stock index futures are trading sharply lower shortly after the opening of Thursday’s pre-market session. Sellers are picking up where they left off on Tuesday with traders continuing to express concerns about a possible U.S. economic slowdown and continued uncertainty around U.S.-China trade relations. On Tuesday, the Dow gave up nearly 800 points in posting its largest decline since October 10. The New York Stock Exchange, NASDAQ and U.S. Treasury market were closed Wednesday as the nation remembered former president George H.W. Bush.

At 0020 GMT, December E-mini S&P 500 Index futures are trading at 2683.50, down 19.25 or -0.71% after hitting an early session low of 2749.75. December E-mini Dow Jones Industrial Average futures are trading 24844, down 202 or -0.80%. This is up from a 24562 low. December E-mini NASDAQ-100 Index futures are at 6748.50, down 54.75 or -0.82%. Earlier in the session, it reached a low of 6641.00.

Reaction to Yield Curve Inversion

Investors are saying that increased algorithmic selling because of a phenomenon in the U.S. Treasury markets is causing the weakness. On Monday, when the selling started, the yield on the three-year Treasury note surpassed its five-year counterpart.

The short-term rate rising above the long-term rate is known as a yield curve inversion. It is often seen as a recession signal although the timing of the economic weakness can’t be predicted. Sometimes it takes years for the economy to contract for two consecutive quarters which is the classic definition of a recession. Many traders say that one can’t call the Treasury market inverted until the 3-month Treasury bill yield or the Two-year Treasury note yield rises above the 10-year yield.

Mixed Signals About US-China Trade Dispute Truce

Stock market investors are also reacting to confusion over the impact of the U.S.-China trade dispute reached over the week-end at the G20 meeting in Argentina. Some confusion was fueled by a discrepancy over the starting date of the truce. Some traders thought the 90-day halt of new tariffs was set to begin on January 1, while others said it started on December 1.

Additionally, President Trump posted a series of tweets late Tuesday telling the world that he controls the tariffs and won’t hesitate to implement new ones if a permanent solution over the trade dispute isn’t reached. Meanwhile, China posted on its website that the negotiations in Argentina went well.

What may be rattling investors is that the current tariffs are continuing and doing damage to corporate earnings while threatening current economic growth.

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