There are storms brewing but for the moment markets are stuck in the Doldrums waiting for the winds to increase in velocity. The issues confronting the market are all too familiar as NOTES FROM UNDERGROUND has been categorizing for the previous months.
On July 5, me and Rick discussed an issue that has finally caught the attention of the financial media pundits. Those who have little knowledge of yield curves are now dictating the narrative now that the U.S. 2/10 curve has flattened through 30 basis points. My previous blog post generated a great deal of commentary and I advise you read the comments and pay close attention to the thoughts from STEFAN.
The ferocious bulls fill the airwaves, telling viewers to ignore the yield curve for the current environment is DIFFERENT than all prior flattening events. Maybe SO but as I have cautioned over the last two years, it is difficult to time equity moves to yield curves. In my research over the last 40 years there is definitely a lag effect. It’s worth looking at this 25-year chart of the 2/10 curve overlayed with the S&P 500. Note the lags in stock market corrections following rounds of curve flattening.