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Feb. 24, 2020, 10:07 a.m. EST

Why the coronavirus outbreak is delivering a fresh dose of recession fear to stock-market investors

The 30-year bond yield hit an all-time low, by some reckonings, and the yield curve is narrowing

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By Mark DeCambre, MarketWatch

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For some, the reading of services activity from IHS Markit released on Friday also elevated recession concerns, which fell 4 points to 49.4. Any number over 50 signifies expansion; below 50 points to contraction.

Tom McClellan, a prominent technical analyst , said the yield curve inversion that occurred in the summer of last year is still in force and that market participants have been too dismissive of that recession signal (see attached chart): “Generally speaking, it takes about 15 months for those effects to show up in overall economic data,” he wrote in a Thursday research note.

Recession signals

“Last year’s yield curve inversion is still yet to be felt, and that is not even factoring the additional economic slowdown effect from the coronavirus,” McClellan wrote.

Amid all this recession talk, Gold has been on a tear. The precious metal often draws heavy bids during market uncertainty. On Monday, it extended gains, rising 1.7% to $1,676.50 an ounce after last week finishing at its highest level since 2013.

Investors couldn’t stop talking about the shiny yellow metal, even through it’s unclear if those bets will pay out over a longer term.

Even so, the Fed doesn’t yet seem inclined to lower rates to placate nervous investors. Vice Chairman Richard Clarida said the central bank is unlikely to lower interest rates given the positive economic outlook. On CNBC on Friday, Atlanta Fed President Raphael Bostic and St. Louis Fed President James Bullard appeared to be sanguine about the health of the U.S. economy, even as they watched coronavirus closely.

BMO’s Ma said that those takes may be justified because the health of the domestic economy doesn’t appear to be one genuinely signaling that a recession is afoot.

Corporate earnings for one have been mostly solid. “Q4 results came in better than expected, rising 1.6% versus the expected 2.1% decline, representing the 32nd consecutive quarter in which actuals beat end-of-quarter estimates,” said Sam Stovall chief investment strategist at CFRA Research.

However, he said the outlook was softening, noting that “2020 forecasts are now at 5.9% versus the 7.9% at the start of the year.”

Mark DeCambre is MarketWatch's markets editor. He is based in New York. Follow him on Twitter @mdecambre.

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