So, my email box lit up again yesterday with the ubiquitous question, “What about the yield curve inversion?” I responded by referencing yesterday’s letter. To wit:
Speaking to the yield curve, all the talking heads are looking at the wrong yield curve; they talk about the 2- to 5-year T’notes, the 2- to 10-year T’notes, and last Friday it was the inversion of the 3-month T’bill to the 10-year T’note. These are NOT the right yield curves. I have had extensive conversations with Ned Davis (Ned Davis Research) about this and the REAL yield curve is/was/and will always be the 3-month T’bill to the 30-year T’bond and it is nowhere near inversion. So anyone that tells you the yield curve has inverted has no concept of history. So much for myth number one about inversion. As the good folks at Bespoke write:
When investors hear yield curve inversion, they automatically think “recession.” That’s because every recession since 1962 has been preceded by an inversion. But, not every inversion has been followed by a recession, so keep that in mind.
As for the stock market, my work shows that there is plenty of internal energy for the stock market on a monthly, or intermediate term basis, but the short-term work suggests a continuation of a stall for the equity markets with no big downside move provided there is not a “black swan” news event. That could change, however, if my indicators flip; stay tuned. And with that, today’s letter is abbreviated due to my travel schedule. As Steve Leuthold writes, “However, investors should not ignore an inflation rate that remains in the sweet spot! Historically, this has produced superior stock market performance.” This morning the preopening S&P 500 futures are better by 10 points.