2023-08-14 22:35:00 ET
Summary
- While we have not made new highs on the 10-year Treasury yield for 2023, closing on Friday at 4.167%, we are too close for comfort on the bond yield front.
- Unlike 2022, the stock market – and the tech sector in particular – had been ignoring creeping bond yields of late, but it may have just started to notice.
- The NASDAQ 100 closed below its 50-day moving average for the first time since March, and any further progress in creeping bond yields is likely to put pressure on the stock market and tech sector in particular.
While we have not made new highs on the 10-year Treasury yield for 2023, closing on Friday at 4.167%, we are too close for comfort on the bond yield front. Unlike 2022, the stock market – and the tech sector in particular – had been ignoring creeping bond yields of late, but it may have just started to notice.
The NASDAQ 100 closed below its 50-day moving average for the first time since March, and any further progress in creeping bond yields is likely to put pressure on the stock market and tech sector in particular.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
I didn’t think we would see the 10-year at 4.20% in 2023, but so far the bond market (and the economy) has surprised me (and most others) with its resilience.
The yield curve inversion has fallen from -108 bps in late July to -73 as of this writing. A mere 35 bps may not seem like much, but it is a huge move in a short period of time – bigger in magnitude than the decline in stock prices in the past two weeks.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
They say that after being deeply inverted, a sudden steepening of the yield curve is an ominous sign. The biggest changes after inversions happened during the last six recessions (see chart). The problem is, we are not in a recession and the yield curve was almost as inverted as when Volcker intervened in 1979-82.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
If the U.S. economy were weakening, Treasury yields should not be rising, as the bond market would sniff it out ahead of time. Jobless claims are called the “desert island indicator,” since if an economist were to be stranded on a desert island and had to take the pulse of the U.S. economy and could ask for only one economic indicator, jobless claims would be it.
Jobless claims spiked last week to 248,000, but they are still considered low by historical standards. Job openings have declined notably, yet the jobless rate has not risen, which right now puts the fate of the economy in the elusive category of “soft landing.”
The only other soft landing in recent memory was in 1994-95, when Greenspan raised rates six times and it was clear there would be no recession, and the stock market surged dramatically in 1995. Could this be another such soft landing? Right now, a soft landing looks more likely than it did just six months ago.
The German Stock Market Hit Another All-Time High — In the Middle of a Recession
While Germany’s recession is only a technical recession, a recession is a recession. The German stock market never declined. It made an all-time high in June, declined notably, and then made another all-time high at the end of July.
Bund yields are also close to their highs for the year and if they make new recovery highs after leaving negative territory in early 2022, rising rates should pressure German stocks.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
One thing for sure is that the Ukrainian situation and the spikes in natural gas affected Europe a lot more than the U.S., so the resolution of the natural gas crisis with LNG tankers and the general perseverance in managing the effects of the war on the German economy have indeed resulted in this big relief rally.
Still, the Germans will have to deal with another winter, the effects of higher interest rates, and a war in Ukraine that is far from resolved, so a relief rally is not as likely as it was at the beginning of the year.
All content above represents the opinion of Ivan Martchev of Navellier & Associates, Inc.
Disclosure: *Navellier may hold securities in one or more investment strategies offered to its clients.
Disclaimer: Please click here for important disclosures located in the "About" section of the Navellier & Associates profile that accompany this article.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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