Moneybeat – Coronavirus hits Wall Street

MARY REICHARD, HOST: Coming next on The World and Everything in It, the Monday Moneybeat.

NICK EICHER, HOST: The World Health Organization says the coronavirus outbreak is a public-health emergency of international concern. Wall Street got the message loud and clear, and traders started selling. 

By the end of the day Friday, the Dow Jones Industrial Average suffered its steepest single-day loss since last August. Back in August, the markets were fretting about a looming recession because of an economic signal known as a yield-curve inversion. Remember the term. More on that in a moment.

Also taking a big hit on Wall Street was the Standard & Poor’s 500 index of stocks. The S&P 500 ended January with the worst month since August, and erased all its gains so far this year. Only the Nasdaq is in positive territory thus far in 2020.

Now, about that yield-curve inversion: three decades ago, economists identified this phenomenon as a predictor of recession. And last week, we had another yield-curve inversion. 

To explain: A normal yield curve shows long-term government bonds yielding more than short-term ones. An inversion just means the opposite and it points to a lack of confidence in the strength of the economy long-term. In particular, a prolonged and steep inversion in the yield curve has been a reliable predictor of recessions.

REICHARD: We are a long way from recession, but setting aside the coronavirus uncertainty that’s roiling markets, economic growth has cooled a bit in this country. The economy’s report card for 2019 is in, and if there were a single figure to judge its quality, something similar to, say, a grade-point average for economic health, it’d probably be gross domestic product. So when you hear GDP, you can think of it as the GPA for the economy. 

The Commerce Department last week released fourth-quarter GDP and it came out at a middling 2.1 percent. So for the whole year, the economy expanded just 2.3 percent.

That’s a disappointment, in that President Trump touted his economic program of lower taxes and lighter regulation as the prescription for growth rates closer to 3 percent. This 2.3 percent annual number is the weakest of his presidency so far.

EICHER: The Federal Reserve, no surprise, decided to leave interest rates where they are. Last week, Fed chairman Jay Powell said the economic fundamentals are solid.

POWELL: The expansion is in its 11th year, the longest on record. Growth in household spending moderated toward the end of last year, but with a healthy job market, rising incomes, and upbeat consumer confidence, the fundamentals supporting household spending are solid.

What’s not solid is business investment, exports, and manufacturing output—and to this point, global trade.

About that, and despite a phase-one trade agreement between the United States and China, Powell believes economic disruption in China is the likely result of the outbreak—not to mention possible effects around the world, based on travel restrictions and business closures.

POWELL: Of course, the situation is really in its early stages and it’s very uncertain about how far it will spread and what the macroeconomic effects will be in China and its immediate trading partners and neighbors and around the world.

And that is today’s Monday Moneybeat.

(AP Photo/Mark Lennihan) A Wall Street sign is shown in front of the New York Stock Exchange, Friday, Jan. 31, 2020.

WORLD Radio transcripts are created on a rush deadline. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of WORLD Radio programming is the audio record.

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