Why the ASX Is Down Today: A Quick Guide

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Big blue chip stocks like BHP Billiton Ltd [ASX:BHP] and Australia and New Zealand Banking Group [ASX:ANZ] were hurt today as the ASX was down as much as 1.32%. This applies for both the ASX 200 and the All Ordinaries.

Here’s your quick guide to what happened.

Three reasons you should watch gold carefully. Read the free report now.

Bond yield curve inverts, weak manufacturing and services data

While some outlets are leading with the headline that poor European PMI data drove the sell-off, I believe the bigger story behind the sell-off is the bond yield curve.

Basically, the yield curve on two prominent types of bonds has turned negative for the first time since 2007.

We all know what happened shortly after that happened — the GFC.

Why the ASX is Down Today

Source: Bloomberg

In fact, this economic bellwether has preceded all nine US recessions since 1955.

At its core, the yield curve inverts when long-term bond yields are lower than short-term bond yields, in this case, three-month and 10-year Treasury bonds.

It means the short-term outlook for the economy is negative.

This shouldn’t come as a surprise to investors, as you can see the spread has been pushing consistently lower since 2016 and has picked up pace recently.

And yet, it still sent ripples through the market.

What should I invest in if equity markets are facing difficulty?

There are a host of options available to the savvy investor. For example, there are defensive stocks like Woolworths Group Ltd [ASX:WOW], and  Coles Group Ltd [ASX:COL].

People don’t stop buying groceries in a recession.

That being said, there is understandable excitement around gold and gold stocks. This last option, however, may need to be a short/mid-term play as gold stocks have also been hurt in the previous recession.

Last time, they spiked just before the recession as you can see in the GDX chart below (a gold miners ETF):

Why the ASX is Down Today

Source: tradingview.com

Something to consider.

If you are into the idea of gold, be sure to check out Greg Canavan’s report/research on the gold opportunity here. It’s free.

Regards,

Lachlann Tierney,
For Money Morning

About Lachlann Tierney

Lachlann Tierney is an Analyst for Money Morning and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest…

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