Stuck in the Mud

Stuck in the mud.  Stocks closed mixed yesterday as investors were unsure about what to make of an inverted yield curve and an anticlimactic end to the Mueller report.  Stocks seesawed around the breakeven mark finding old resistance as investors lacked the willpower to break free.


1)  The inverted 3 month / 10 year yield curve should be noted and not worshiped as a prophet… yet. While the inversion is definitely a sign that investors are expecting a rough ride for the economy in the coming months, for the inversion to be a strong predictor it must first remain inverted for 3 months.  The last time this curve inverted was 2007, a year before the financial crisis broke.  The prescription here is: vigilance.

2)  Brexit… remains a hot mess.  Last night WHILE YOU SLEPT the British Parliament temporarily stripped PM Theresa May’s powers as she failed to gain the support for her version of Brexit.  MP’s, now in control of the process, will consider other alternatives to Brexit including another referendum vote or even cancelling Brexit altogether.  The drawn out process between the UK and EU remains a big global economic risk as the EU itself is on shaky economic ground.  US markets have not factored in the risk associated with the divorce.

3)  Apple underwhelmed investors with announcements that they will enter the media business with “print” and content.  They also announced a new credit card.  The announcements were all in line with industry experts’ expectations and it is common for Apple’s stock to trade off on announcement days, which is precisely what it did, selling off by -1.21% adding pressure to the NASDAQ and S&P.



For a change, I will lead off with the bond markets which traded up for a fourth consecutive day.  The aggregate bond index traded up by +0.23% topping off an impressive upward swing (see chart 19 in my attached daily chartbook).  10 year treasury yields ended yesterday’s session at 2.39% which is the lowest it has been since 2017.  To put things into perspective, the two year maturity treasury is yielding 2.24%, and the recently made famous 3 month treasury bill is yielding 2.44%.  The 2/10 yield curve retreated slightly closing at +15 basis points due to a small rally in 2 year notes, which indicates that investors are starting to bet on a Fed easing.  Remember that the Fed controls the front end of the yield curve and 2 year and under maturities are a proxy for their policy.  All longer maturities are controlled by investors, who have been placing their bets on a not so bright future for the economy.  Stocks closed mixed in yesterday’s session with the S&P500 closing down by -0.8%, the Dow Jones Industrial Average inching up by +0.6%, the RUSSELL 2000 gaining +0.46%, and the NASDAQ 100 sliding by -0.12%.  In yesterday’s below average volume session the Consumer Discretionary sector led the way and the Technology sector was the worst performer.


This morning the US Census Bureau will release housing numbers.  Housing starts are expected to show a month over month decline of -1.6% versus last month’s gain of +18.6% and Building Permits are expected to show a slide of -0.9% versus last month’s +1.4% growth.  Later this morning, the Conference Board will release its important and highly watched Consumer Confident Index which is expected to have grown to 132.5 from February’s 131.4.  To learn more about Consumer Confidence Indices, read my note on the subject here: .  McCormick and Carnival will release earnings this morning.  The Treasury will auction off $66 billion in year bills and 2 year notes, which should prove to be interesting given recent events in short maturities.  Finally we will hear from three Fed governors as the interest debate rages on


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