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Stocks tumble as Wall Street fears a recession on inversion of bond yield curve, after Fed Chair hints at higher rates, stocks making biggest moves in premarket trading, crypto-friendly lender Silvergate collapses, and more financial news.
With the Federal Reserve signaling it will make a larger move with its next interest rate hike, and a bond yield curve inversion, fears of a recession sent stocks tumbling in early trading on Thursday.
After all stocks were down, Dow Jones futures nudged up 32 points or +0.10%, while S&P 500 futures were down -0.25 points or -0.01%. NASDAQ futures dipped -7.50 points or -0.06%, Yahoo Finance reported.
Oil futures rose, with WTI crude up +0.23% and trading at $76.88 a barrel, while Brent crude was up +0.31% and trading at $82.92 a barrel, as of 8:51 AM ET.
Uber rose 2% in premarket trading, while Hilton inched up 0.5%. Several stocks took a tumble, including crypto lender Silvergate Capital plummeting 50%. Mortgage lender LoanDepot fell over 10%, SVB Financial plunged 30%, and shares of Etsy slid more than 6% before the opening bell, CNBC reported.
This week, the yield curve inversion – one of Wall Street’s most closely followed indicators – returned. US Bank reports that the inverted yield curve occurs when coupon payments on shorter-term treasury bonds exceed the interest paid on longer-term bonds. And while it doesn’t inevitably lead to a contraction of the economy, the inversion is considered a harbinger of recession, having occurred in every recession since 1955.
On Tuesday, the U.S. 2-year Treasury-Note yield surged 18 basis points to 5.06%. This is the highest level since 2007, and the spread between the two-year and the 10-year reached negative 108 basis points (or -1.08 percentage points).
Bond traders have not been this fearful of a recession since 1981, a time the St. Louis Fed calls the period of “Great Inflation,” when yields on the two-year treasury note hit 16%, and the spread was over 100 basis points, Yahoo Finance reported.
On Thursday, the yield on the US 10-Year Treasury was up +0.004 at 3.98%, while the 2-Year Treasury dipped -0.046 with a yield of 5.02% as of 8:43 AM EST.
Federal Reserve Chairman Jerome Powell spent two days being grilled before Congress this week, revealing that he still sees inflation as a persistent and pernicious threat, Yahoo Finance reported.
“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell told the Senate.
Markets expect the Fed to lift its benchmark rate by 50 basis points instead of 25 basis points as it did in the last session.
Crypto-friendly lender Silvergate saw its stock tumble over 50% in premarket trading. The company announced it is winding down operations and will liquidate the bank after turmoil in digital assets, CNN reported.
“In light of recent industry and regulatory developments, Silvergate believes that an orderly wind-down of Bank operations and a voluntary liquidation of the Bank is the best path forward,” the company said in a statement on Wednesday. The bank said its plan includes a “full repayment of all deposits.”
