The US yield curve has (almost) inverted, and this has been making headlines for the last couple of months now. This should come as no surprise, as the yield curve is perhaps the most reliable recession indicator out there. But what does an inverted yield curve tell us about future returns? Our analysis shows that while asset class returns in general are somewhat subdued between the first date on which the yield curve inverts and the start of the recession, the inversion of the yield curve is not followed by extraordinary deviations in returns.
Before moving over to the results of our analysis, we would like to dwell briefly on the definition of the yield curve, and the combination of maturities in particular. In most empirical research, the yield curve is either defined by the differential between the 10-year and 3-month US Treasury yield…
Whether you're watching CNBC, Twitter or another news outlet, you're hearing a great deal of talk about the odds increasing that the Fed will drop rates soon. Everyone's cheering it on..........yet no one's talking about recession possibilities. Don't say 'recession' on live tv! Keep that notion out of your head! At least I believe that's what Trump is thinking as he warms up for his 2020 campaign. He wants the market "up, up, up". A strong stock market with plenty of green and profits in your pocket. If it fails after 2020, so be it. At least he'll have his re-election and be further away from any prosecutorial attacks for four more years. If he loses, blame it all on the Democrats!
In the meantime our yield curve continues to invert, or decay if you see it that way;…
No bull lasts forever. Good times eventually are followed by bad ones, as investor euphoria gives way to fear and despair. The performance history of the Standard & Poor’s 500 stock index drives home the point: The 12 bull markets since the 1930s have all been followed by bear markets, or downturns of 20% or more, according to S&P Dow Jones Indices. The average bear market decline is a sizable 40%. Then there’s the mega-bears like the 2007-2009 rout during the financial crisis that knocked the S&P 500 down 57% and the nearly 50% slide after the internet stock bubble burst in 2000.
The current bull run, the second-longest in history and one that's generated a…
The global economy has regained some composure, according to asset management firm Schroders. In their view, markets have regained a risk appetite following action by central banks, the normalization of commodity prices, and a lack of materialization for tail risks such as a U.S. recession or a Chinese hard-landing:
While volatility is indeed near its YTD low with the benchmark VIX down 32% since the start of the year, we would point out that this is potentially some calm before the storm.
Here are some upcoming waves, and we’ll see how they break:
Earnings and Buybacks: The blended earnings decline for the S&P 500 so far in 2016 Q1 is -8.9%, according to Factset.…
Is our economic recovery truly as strong as charts would imply? Are we strong enough to stand on our own at these levels, or have we overshot the boundaries thanks to quantitative easing? Are economics in the U.S. strong enough or does recession lie ahead?
Curve watchers Anonymous has an eye on the yield curve. Here is a snapshot of year-end-closing values from 1998-12-31 through 2015-12-31.
Yield Curve Year End Closing Values 1998-2015
Unlike 1999-2000 and again 2007-2007, no portions of the yield curve are inverted today (shorter-term rates higher than longer-term rates).
Inversion is the traditional harbinger of recessions, but with the low end of the curve still very close to zero despite the first Fed hike, inversions are…
S&P 500 earnings are on track to close their first reporting season of negative growth since the Great Recession and estimates call for sub-zero growth in the current quarter as well.
Even if the trend reverses next year, as expected, a Fed rate hike in December could mark an unprecedented conflict between a tightening cycle starting at the same time as earnings fall into recession.
"We can't think of any instances when the Fed was hiking during an (earnings) recession," said Joseph Zidle, portfolio strategist at Richard Bernstein Advisors in New…
Very quickly some morning headlines. While a few of the geopolitical risk headlines may be behind us (Brazil election, Russian border, etc) I believe markets are waiting for this quarters earnings (and guidance) to set the stage. Multi-nationals with exposure overseas may struggle going forward if one believes the headlines below:
- IMF revises and raises growth for the US BUT lowers prospects for the world (4.0 to 3.0%)
- IMF says some valuations are "frothy"
- SODA warns of miss and citing lower US demand (stick a fork in it)
- Women's apparel mfgr CBK warns of lower sales; blames low mall traffic.
- Hong Kong retailers experience sharp sales decline (blames protests of course because happy people would be spending)
- AGCO cuts forecast, shares down 6% premarket
- Taiwan's exports growth…
Five years since the end of the Great Recession, the economy has finally regained the nine million jobs it lost. But not all industries recovered equally. This awesome interactive from the NYTimes demonstrates what's moving and what is not along with over 200 charts drilling it down in simple terms. Tell your high school and college attendees. Are they in these growth areas? Click chart to make the jump to the interactive.
The U.S. is having to accept the "taper" while slow growth persists. Maybe it's time to get back to reality and fundamentals. Actually that works for me because I'd much rather buy stocks with S&P500 at the 100week than "here". Only time will tell but hedging and shorts are (finally) working.
The 10yr is definitely not happy and is trying to bounce off of 2.6 but if that goes.........look out for more pain (for equities). Seems as though sell in May was a good idea after all.
I so would love FOX news to pause from all the foot stomping and finger pointing "the labor force participation rate continues to drop under Obama and his failed Presidency!" to respond to this post from Ritholtz but that will never happen............because it doesn't boost ratings. If you drink the FOX koolaid, please take a look at this research and do some of your own.
Is it Obama's "failed policies"....or a good percentage merely a matter of aging demographics AND was it foretold? Yes it was - over a decade ago. Of course riling people up…
- On this day in 1965: In a boardroom on Cove St. in New Bedford, MA, a young, crew-cut Warren Buffett takes control of decrepit textile maker Berkshire Hathaway Inc., whose stock closes that day at $18 a share. Over the next thirty-three years, the stock price rises to $84,000 a share.
- GS, MS and others revised their GDP # to a negative after today's poor construction spending numbers. A negative GDP print has many wondering if we are, in fact, in a recession. A recession as defined by the Fed is two consecutive GDP reports.
- The weak U.S. recovery has nothing to do…
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