The Dow fell 400 points Friday as a leading recession indicator stoked fear among investors.
The yield on 3-month Treasuries rose above the rate on 10-year Treasuries for the first time since 2007 — a shift that spooked Wall Street and sent the Dow plunging. Investors have piled back into stocks after a sell-off in late 2018.
The flattening yield curve, or the difference between short- and long-term rates, has worried investors for months. A narrowing spread is typically seen as sign that long-term confidence in the economy is waning, which could signal an eventual economic contraction.
Friday's flip added to an already rough start for the Dow, which is now down about 1.5%.
The index stumbled at the opening bell on poor manufacturing data from Germany, which also spelled trouble for the country's bond market. The yield on Germany's benchmark 10-year government bond fell below zero for the first time since October 2016.
All of that news is fueling Wall Street's ongoing concerns about slowing global growth.
White House economic adviser Larry Kudlow told CNBC last year that the spread between 3-month and 10-year Treasury yields was important to watch.
"It's actually not 10s to 2s; it's 10s to 3-month Treasury bills," Kudlow said last May. He was referring to the spread between 2-month and 10-year Treasury yields, which is also closely monitored.
The Dow wasn't the only major US index to see losses Friday. The S&P 500 dropped more than 1.5% by midday. The Nasdaq was also down roughly 2%.
Michael Darda, chief economist and market strategist at MKM Partners, said in a note that investors should wait for weekly and monthly averages to show an inversion before they read it as a "powerful recession signal."
And he noted that on average, recessions occur 12 months after an inversion — not immediately.