What We're Reading

Wall Street’s reaction to hotter-than-estimated inflation data suggested growing bets the Federal Reserve has a long ways to go in its aggressive tightening crusade, making the odds of a soft landing look slimmer.

After a lengthy period of subdued equity swings, volatility has been gaining traction. That doesn’t bode well for a market that’s gotten more expensive after an exuberant rally from its October lows. Stock gains have been dwindling by the day amid fears that a recession in the world’s largest economy could further hamper the prospects for Corporate America.

A slide in the S&P 500 Friday added to its worst weekly selloff since early December. The tech-heavy Nasdaq 100 tumbled about 2% as the Treasury two-year yield topped 4.8%, the highest since 2007. The dollar climbed. Swaps are now pricing in 25 basis-point hikes at the Fed’s next three meetings, and bets on the peak rate rose to about 5.4% by July. The benchmark sits in a 4.5%-4.75% range.

“There’s little room for upside i

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.

Definition

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 (10Y-3M), or the 10-year and 2-year US Treasury yield (10Y-2Y). The reasons for preferring one over the other depends on many things, in

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; implying a rough road ahead for the U.S. as China and European countries slowing low and behold, the U.S. having a "global market", the U.S. looks to be slowing as well.  Shocker!

Now the US housing market is slo

Wall Street pros say bull markets don’t die of old age. But after eight years of rising stock prices, being on the lookout for signs of a market peak makes good financial sense.

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 fourth-best gain of 254%, will eventually tire out, hit one final peak and head lower like all the rest.

The only question is when?

James Stack, a mark

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:

Investors may wade into unknown territory next month as the Federal Reserve readies the first rate hike in nearly a decade amid a corporate earnings recession.

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 York.

"In the last six months one can point at a lot of different things. But if you think about fundamentals, falling corporate profits and the threat of rising rates" are behind the market stalling, Zidle said.

With more than 90 percent of S&P 500 components having reported, S&P 500 e

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 slips
• MCD Japan expects net loss this year
• Slide in German industrial output stokes fear of recession

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.

Is that what the 10yr is signalling?  The EU doesn't have the mechanism to launch quantitative easing.  Raising rates would pressure their recovery.  Has Draghi painted himself into a corner? 

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 brings in viewers and sells newspapers.  Hype sells, peiod.  Telling people they knew it was going to happen but didn't bother to warn you...........well, not so good.  Its easier to point at a President and say's "it's all his fault" than to admit that aging baby boomers coupled with increased automation and outsourcing to help companies bottom line (stock price) are the main culprits. 

By the way, while they're pouring kerosene on your sm

• 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.  Source: Roger Lowenstein, Buffett: The Making of an American Capitalist (Random House, New York, 1995), p. 130. Courtesy of JasonZweig
• 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 with inequality says CalifiaBeachPundit
• McKinsey says businesses are still extremely concerned over cyber attacks and aren't anywhere prepared as they should be (yet).  70% of the respondents said that security concerns had delayed the adoption of public cloud computing by a year or more