We're still in a bull market, here's one of the reasons why, from MarketWatch, May 13:
Jittery investors who are looking to the indexes for signs of an approaching bear market might do better by focusing their attention elsewhere: on the yield curve. So says Jeffrey Kleintop, chief market strategist at LPL Financial, who asserts in a note Tuesday that the yield curve has a perfect track record of predicting the top of the stock market over the past 50 years, and it’s not signaling a bear market right now.
The yield curve is another way of describing the difference between short-term Treasury yields and long-term yields. It’s a favorite tool among financial and economics wonks because of what it says about the economy. The widening between the yields of different maturities, known as a steepening curve, often signals a brightening economic outlook. On the contrary, if the curve flattens considerably, the growth outlook tends to be souring.
If the Federal Reserve aggressively hikes its key policy rate, short-term Treasury yields in turn rise swiftly. If short-term yields climb higher than long-term rates, the curve is said to invert. An inverted yield curve is generally a sign that a recession is about to begin, which means that it’s also a predictor of the top of a bull market in equities, says Kleintop.
There are a number of different Treasury maturities one can use to calculate the yield curve, but Kleintop chooses to find the spread between the 3-month T-bill 3_MONTH -14.29% and the 10-year note 10_YEAR -2.71% . Here’s where that differential has turned negative over the past 50 years, and how it compares with the S&P 500 index SPX -0.47% :
Writes Kleintop:Earlier:
“Every recession over the past 50 years was preceded by the Fed hiking rates enough to invert the yield curve....MORE
10-Year Treasuries Yield Sets 7-Month Low, Declining Real Rates Support Gold
