The Dow and broader U.S. stock market advanced on Thursday, as trade-deal optimism offset the sickly feeling on Main Street that the economy was barrelling toward recession.

Dow Extends Rally; S&P 500 and Nasdaq Follow

Wall Street’s major indexes traded higher for most of the session on Thursday despite mixed pre-market conditions for Dow futures. The Dow Jones Industrial Average advanced 31.65 points, or 0.1%, to 26,568.47.

The broad S&P 500 Index of large-cap stocks gained 0.4% to 2,926.59. Ten of 11 primary sectors reported gains, led by financials stocks.

Meanwhile, the technology-focused Nasdaq Composite Index rose 0.7% to 7,968.12.

Treasury Yields Teeter at 2%

After crashing below 2% earlier this month, the 10-year U.S. Treasury yield is only barely holding above that level, a sign that investors are sensing trouble ahead for the economy.

The benchmark yield fell to a low of 2.01% on Thursday, according to CNBC. Last week, it plunged to the lowest level since November 2016.

The two-year Treasury yield, which tends to move in lockstep with Federal Reserve policy, is coming off its biggest monthly decline since the financial crisis.

Yields decline as bond prices rise.

Bond yields accelerated their declines after the Federal Reserve adopted a more dovish tone on monetary policy. Rate cuts are not only back on the table, they have been priced in with 100% certainty by the market, according to CME Group’s FedWatch Tool.

The last time the Fed cut interest rates was in response to the financial crisis more than a decade ago. By cutting rates again, central bankers will have all but conceded that the economy isn’t performing as well as their indicators suggest.

That the Fed is willing to cut interest rates while the economy is supposedly firing on all cylinders should raise alarm bells for people invested in the stock market. Charlie Bilello summarizes it really well:

1) S&P +16% YTD, best start since '97, <1% from ATH.

2) Unemployment @ 3.6%, lowest since 1969.

3) 104 Straight Months of Job Growth, longest in history.

4) Wages +3.1% YoY, outpacing core inflation (2% = Fed's target) for 78 straight months.

5) Fed expected to cut rates in July. pic.twitter.com/St0ApH2WPr — Charlie Bilello (@charliebilello) June 19, 2019

As far as economic indicators go, the Department of Commerce confirmed on Thursday that the U.S. economy expanded 3.1% annually in the first quarter, unchanged from the previous estimate.

Click here for a real-time Dow Jones Industrial Average price chart.