The Bond Market Is Doing Something Not Seen in Decades It Could Signal Trouble in the Stock Market. The Motley Fool

All 12 sectors of the S&P 500 fell in the red during Thursday’s trading session, with the energy sector leading the losses. «We are constructive on revenue and earnings visibility given recent backlog growth, particularly in the company’s Aviation and Bell segments,» analyst Jason Gursky wrote in a Wednesday note. JetBlue Airways tumbled more than 7% a day after the company announced it would end its partnership in the northeast U.S. with American Airlines to focus on Spirit Airlines. American shares moved 2% lower, while Spirit rose more than 1%.

«If the Fed does pull this off, prices could move even higher from here,» said Cox, of eToro. «When rates are lower, people feel more optimistic and are more likely to spend and invest.» Brent crude futures rose $1.79, or 2.3%, to $80.86 a barrel. West Texas Intermediate crude added $1.89, or 2.6%, to $75.45. Nvidia, Advanced Micro Devices, Micron Technology and Qualcomm rose 1% each. Both the iShares Semiconductor ETF and VanEck Semiconductor ETF added 1.3%.

  1. «Unless Friday’s report is much weaker than expected, the Fed will not likely change its plans to increase rates during the next regularly scheduled meeting later this month.»
  2. American shares moved 2% lower, while Spirit rose more than 1%.
  3. Bitcoin touched a 13-month high of above $31,450 on Thursday as the drumbeat for institutional bitcoin demand grew louder following comments from BlackRock CEO Larry Fink.
  4. Both the iShares Semiconductor ETF and VanEck Semiconductor ETF added 1.3%.
  5. Additionally, the minutes of the Federal Reserve’s June meeting, released Wednesday, showed that most officials would support more rate increases ahead.

Former Dallas Federal Reserve President Robert Kaplan said Tuesday he expects the central bank to start lowering rates soon as it seeks to seeks to avoid a recession as inflation recedes. Tuesday’s gains extend last week’s advance as the Israel-Hamas war shows little signs of a resolution. Growing confidence that the Federal Reserve will cut interest rates in 2024 also helped oil prices. The yield on the 2-year Treasury yield traded at 5.05% on Thursday, reaching levels not seen in 16 years, following the release of the latest ADP private payrolls report.

Wolf Research’s Chris Senyek says Fed will cut rates for ‘the wrong reasons’ next year

Continuing claims edged lower to 1.72 million, as both numbers pointed to a resilient labor market despite the Federal Reserve’s rate-hiking campaign. «In this environment, the FOMC needs to make policy more restrictive so we can return inflation to target in a sustainable and timely way,» Logan said in prepared remarks for a speech at Columbia University. But she still sees higher rates ahead as the Fed fights to get inflation back down to its 2% goal. Simon Property Group’s stock rose 1% Thursday before the bell following an upgrade to outperform from peer perform by Wolfe Research. The three major indexes were trading down directly following Thursday’s opening bell.

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U.S. Treasury bonds are debt securities issued by the government. They pay a fixed interest rate until they mature, at which point the bondholder recoups the principal. The interest rate (or yield) is normally higher on long-date bonds as compared to short-dated bonds. However, the Treasury bond market — a recession forecasting tool with a near-perfect track record — continues to sound its most severe alarm in decades. Recessions have typically coincided with a substantial decline in the S&P 500.

«As we get into the spring and early summer, I think the Fed’s going to be cutting for the wrong reasons. I think the economy is going to slow, the lagged impacts of rate hikes will get the economy.» The cryptocurrency was last lower by 1% at $30,147.48, according to Coin Metrics. It gave back earlier gains after better-than-expected U.S. jobs data increased investor worries about path of interest rates. Thursday’s economic data releases foreshadow strength in Friday’s jobs report, said Jeffrey Roach, chief economist for LPL Financial. Second, even if the economy suffers a recession, investors who sell wouldn’t know when to buy again.

Some investors switch direction as Nvidia and AI stocks soar

The S&P 500 usually rebounds about four or five months before a recession ends, and the index has historically returned a median of 30% between its bottom and the end of a recession, according to JPMorgan Chase. Investors who attempt to time the market will probably miss some of those gains. The 10-year and 3-month Treasury yields have inverted before every recession since 1969, with no more than 16 months between the inversion and subsequent recession. For context, the current inversion began 15 months ago in November 2022, implying that the U.S. could slip into recession by the end of next month. Many economists expected the U.S. to suffer a recession last year. Economists surveyed by The Wall Street Journal in late 2022 put the odds of a recession at 63%.

The current yield curve inversion, despite its severity, could be another false positive. However, the yield curve becomes inverted (starting high and sloping down as it mores right) when long-dated bonds pay less than short-dated bonds. Some investors hedge against recession risk by purchasing long-dated bonds to get guaranteed returns over an extended time period. Demand for those long-dated bonds drives prices higher and yields lower. Senyek added that his firm thinks the Federal Reserve will cut interest rates «a few times» next year, but that he doesn’t think those moves will be enough to stave off a deeper-than-expected downturn. Companies’ wage growth, oil prices, and stronger-for-longer employment levels are some of the major swing factors that could impact disinflation over time, the strategist said.

Specifically, an inversion between the 10-year and 3-month Treasury yields has preceded every recession since 1969, with only one false positive in the mid-1960s. Welcome to our coverage of the Dow Jones Industrial Average (DJIA) today, a key barometer of the U.S. stock market’s health.This page features a real-time Dow Jones futures chart. The earlier move up was in contrast to weaker stock prices and yields. Additionally, the minutes of the Federal Reserve’s June meeting, released Wednesday, showed that most officials would support more rate increases ahead. Cryptocurrency liquidity has been low for several months, continuing to exaggerate both up and down moves.

If inflation proves more stubborn than expected, the Fed may delay its rate cuts, Dave Sekera, chief U.S. market strategist at Morningstar, told ABC News. As inflation nears normal levels and hiring remains robust, many economists expect the U.S. to achieve a soft landing. That type of outcome would help companies thrive and stock values climb, analysts said. In a larger sense, rate cuts signal to observers that the central bank is optimistic about its fight against high prices and confident that it can begin taking the brakes off of the economy, Cox added. «I think that we’re very much priced for perfection, if you think about the rally. We’ve only priced in now that soft landing scenario,» Senyek told CNBC’s ‘Squawk on the Street’ earlier Tuesday.

Put another way, the firm’s profits have been growing faster than its shares. Those moves come as investors cheer recent data showing inflation is moving closer toward the Federal Reserve’s 2% target. Expectations of potential rate cuts in the new year have also lifted equities in recent weeks. Despite weaker volume, Tuesday’s moves likely signal a continuation of the positive market trends boosting major indices in recent weeks, said Keith Lerner, Truist’s co-chief investment officer. Stocks slid on Thursday after better-than-expected jobs data increased investors’ anxiety around the state of the economy and path of interest rates. Many economists now believe the Federal Reserve will thread the needle and achieve a soft landing, meaning policymakers will tame inflation without triggering a recession.

The current yield curve inversion was most severe in May 2023, when the average yield spread (10-year Treasury yield minus 3-month Treasury yield) dropped to -1.71%. The yield curve has not been so steeply inverted since June 1981, when the average yield spread was -2.04%. For instance, the 10-year Treasury currently pays less than the 3-month Treasury, meaning that portion of the yield curve is inverted. What makes that noteworthy is the near-perfect accuracy with which those bonds have forecasted past recessions.

Sweetgreen shares rose 4% after Bank of America upgraded the stock to buy from neutral, citing increasing foot traffic, sustained momentum in same-store sales growth and long-term plans to automate operations. Private payrolls exploded in June, with job growth totaling 497,000 on the month, according to a report from payrolls processing firm ADP. Wolfe’s price target of $127 implies 7.4% upside from where shares closed on Wednesday. The Fed skips a meeting in October, but odds that rates will stand a half-point higher by the Nov. 1 meeting are now 40.1%, up from 31.6% Wednesday.

June’s increase was more than double the Dow Jones consensus estimate of 220,000 and far better than the downwardly revised 267,000-job addition seen in May. The average yield spread was -1.3% in January 2024, but that still represents the lowest reading since August 1981, when the average yield spread was -1.43%. In that context, Treasury bonds are doing something investors have not seen in decades. In bdswiss forex broker review fact, a blog post from the Federal Reserve Bank of St. Louis says the implied «recession probability would be unprecedentedly high for a false positive.» The chart below lists the start date for each yield curve inversion involving the 10-year and 3-month Treasuries since the late 1960s, and the start date of the subsequent recession. The chart also shows how much time elapsed between the two events.

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