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There had been debate among economists and fund managers about the importance of previous yield curve inversions, but Tuesday’s market action provided an unambiguous signal that investors are expecting a recession.
Driving the news: The U.S. Treasury yield curve completely inverted Tuesday, with 1-, 2- and 3-month Treasury bills all paying higher interest rates than 30-year Treasury bonds.
Why it matters: The 3-month/10-year and 2-year/10-year yield curve inversions are closely watched precedents of recession. Economists at the Federal Reserve recently called the 3-month/10-year inversion "the best summary measure" for an economic downturn.
The big picture: Despite President Trump's rosy assessment of the U.S.-China trade war, investors are growing more concerned that there is no end in sight and are buying up safe-haven U.S. government debt to take cover.
What's happening: Investors continue packing into the long end of the yield curve, bidding up prices and pushing down yields.
It was also the first time since 2009 that the S&P 500′s dividend offered a higher yield than 30-year Treasury bonds.
President Trump's credibility on the progress of trade negotiations is eroding among investors, economists, and, perhaps most distressingly, the Chinese.
Few negotiators in Beijing see a deal as possible ahead of the 2020 U.S. election, in part because it’s dangerous for any official to advise President Xi Jinping to trust Trump will abide by terms of a deal, Bloomberg reported Tuesday, citing unnamed Chinese officials.
Ratings agency S&P Global also expressed doubt about a trade war solution, joining other organizations with similar sentiments this week.
Investor worry is growing about the president's ability to broker a near-term deal.
The continued bright spot in global economic data has been the solid state of U.S. consumers. Unemployment is low, and consumers are confident and continue to spend freely, providing a major buoy for the rest of the economy.
What they're saying: “It’s good to remind one’s self about what the fundamental, underlying drivers of the economy are," Scott Clemons, chief investment strategist at Brown Brothers Harriman, says in an email.
Of note: Both major readings of U.S. consumer confidence remain at elevated levels.
The bottom line: “The trade disputes are like waves crashing on the shore. The economic tide, driven by personal consumption, is still coming in," Clemons adds. "The risks of recession are way overstated, given the strength of the consumer."
The American dream is on hold, Axios' Justin Green writes.
By the numbers: Some indicators of what's happening...
The big picture: "The net worth of your average Millennial household is 40 percent lower than for Gen X households in 2001 and 20 percent lower than for Baby Boomers’ households at the end of the 1980s," notes Annie Lowrey in The Atlantic.
Between the lines: "The generation unlucky enough to enter the labor market in a recession suffers 'significant' earnings losses that take years and years to rebound," Lowrey reports.
Why it matters: The human costs are huge, leading to delayed family formation and more people living a paycheck away from disaster.
Of note: All this is during a booming economy!
Go deeper: The global fear of too few young people