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When a country's gross domestic product shrinks for two quarters in a row, a recession is underway.
Just the fear of the recession can cause stock markets to shudder. On Wednesday the Dow Jones Industrial Average, an index of 30 significant U.S. stocks, dropped 800 points. And as you see on the left side of your screen, that's more than three percent overall from where the Dow started the day. The main reason was because of something called the Treasury Bond. On Wednesday morning, the 10-year Treasury Bond dropped just below the 2-year Treasury Bond. OK. Why is that significant? Because every time that's happened in recent decades, a recession has followed.
In fact, the last time the 10 and 2-year Treasury Bonds flipped was in 2007, at the beginning of the Great Recession. But this doesn't necessarily mean we're at the dawn of a new one. The U.S. economy is strong, unemployment is historically low, consumer spending is high. These are all good indicators for the economy. So a leading U.S. investment analyst expects the economy to slow down but not go into a recession, despite the Treasury Bond flip. Still, the change led investors to sell stock in companies and move it into bonds, a less risky place to keep money in uncertain times. And that's what caused the stock market to take such a dive.
