yield curve inverted market crash

i am not a predictor of the market, neither do i have any crystal ball. but the last post accuracy has been immediately proved in the market on Tuesday December 4th 2018. wow, what  fall!

IBD narrates – “At one point in the session, a 2.78% yield on the five-year note dropped under a 2.80% yield on the shorter two-year note. In other words, it made less sense for investors to hold the longer-dated bond for a specific return.”

usually the 10  year is compared with 2 year curve. But this is telling. Market need something to sell.

IBD continues – This was supposed to be a banner week for the Dow Jones industrial average and the broader stock market. President Donald Trump called off his escalation of China tariffs days after Fed Chairman Jerome Powell traded his hawkish talons for a Santa rally cap. But financial markets just aren’t buying the good cheer.

so i will either short or stay out of the market

preserve our capital and profits at all cost! Market is in correction.

then they my be a possibly to play an other day

Raising interest rates and the market

 

The Federal Reserve is implementing a multi-year interest rate increase plan as a way to manage inflation.  Many bull markets have ended as a result of the Federal Reserve raising rates too much.

As long as the 10-year U.S. treasury rate is below 5%, rising interest rates have a positive correlation with a rising S&P 500.  Said simply, rates go up and stocks go up.  Above 5%, rising rates have a negative correlation with the direction of the S&P 500.  Today, the 10-year treasury is about 2.9% — shown with vertical blue dashed line on chart below.

The Federal Reserve attempts to manage inflation (Fed target rate of inflation is 2% year-over-year) through interest rates.  By raising interest rates, the Fed can slow economic activity.  Borrowing (e.g., for a home or any other purpose) becomes more expensive.  Saving and earning interest becomes more attractive.  Consumption moderates relieving upward pressure on prices (inflation).
The Fed Funds rate is currently about 1.4%.  The Fed says it plans to raise the Fed Funds rate to about 2.7% in 2019.  The current spread between the Fed Funds rate and the 10-year treasury rate is about 1.5%.  If we assume the spread remains constant going forward, the 2019 10-year treasury rate using the Federal Reserve’s projection of the Fed Funds rate is 4.2%.  Based on market relationships dating back 55 years to 1963, interest rates rising should not be a major threat to the bull trend this year.

The 17 consecutive month of positive Leading Economic Index (LEI) percent change month over month was reported this week at plus 1% for January.  The LEI continues to signal growth through the first half of 2018.

Source of the entire article is delta market sentiment news