Yield Curve Flattens Again

Even though the stock market is within 1% of its record high, the 10-year yield fell 4 basis points to 2.82% on Monday as it is following my prediction. Growth probably won’t get much higher than where it was in Q2 and inflation will decelerate after it peaks in August.

The 2-year yield fell 2 basis points to 2.59%. This means the difference between the 10-year yield and the 2-year yield is only 23 basis points which is the lowest of this business cycle. This flattening is right before the Fed raises rates again at its next meeting on September 26th.

Ultimately, this means nothing for a recession yet, but it implies growth will follow the trajectory the ECRI leading index predicts. There is a sharp difference between what the 10-year sees in the future and what stocks see.

I think the future is somewhere in the middle as growth will decelerate, but still be decent.

Yield Curve – S&P 500 Closes In On Record High

We have been watching the S&P 500 try to reach a new record high for weeks. It took a strong step in that direction on Monday as the S&P 500 increased 0.25% to 2,857.05. The VIX fell 1.19% to 12.49. The CNN Fear and Greed index is at 56, showing us that there is room for stocks to increase.

I think technical resistance, global economic slowing, and fears of a trade war are preventing the market from reaching a record high. Ultimately the technical resistance will be broken. Stocks will increase during the trade skirmishes and crash if there is a major tariff announcement. They will soar if there is news of the skirmishes ending.

I’ll discuss more about trade later in this article.

Yield Curve – Sector Weighting

The best sectors on the day were materials, industrials, and consumer discretionary, which were up 0.72%, 0.64%, and 0.62% respectively. Macy’s stock was up 6.05% even though it had bad earnings last week. It has recovered close to half of its losses from the crash on Wednesday.