The flattening of the yield curve is no longer an indicator of recession. Here’s why.
This commentary was posted recently by fund managers, research firms and market bulletin writers and was edited by Barron’s.
Richard Bernstein Advisors
March 24: Over the past 40 years, the US economy has gone into recession six times. During these 40 years, the difference between 10 years [Treasury] yields and 2-year yields (2s10s curve) reliably dipped into negative territory about 18 months on average before GDP turned negative. Today, the 2s10 curve hits again on the verge of reversing (while some curves, like the 3s10 and 5s10, are already reversing), causing a stir among market watchers that a recession is imminent.
Although growth may slow as the Federal Reserve tries to contain inflation, our work suggests that investors will be better served by looking elsewhere for signals of recession. In fact, our models show that the flattening of the curve could be more of a consequence of the Fed’s relentless bond buying and consequent growth of its balance sheet, rather than an impending growth shock.
Labor market dislocations
Macro Market Strategy Industry Report
March 24: Low-wage workers make up 44% of the American workforce and are disproportionately women and black and brown people. The majority are between 25 and 50 years old, work in a small number of professions, endure economic hardships and face an insurmountable path to better paying jobs. A third live below 150% of the federal poverty level (about $36,000 for a family of four) and nearly half don’t have a high school diploma. Jobs associated with low wages are retail sales, building cleaning, food and beverage services, and personal care services.
Wage pressures in the bottom half of the income distribution are expected to ease as health and childcare concerns ease. However, overall wages are expected to continue to rise in 2022 as wage increases spread to other income groups. The dislocation of labor markets has been caused by several factors: first, older workers retiring early, spurred by the pandemic; second, declining immigration; third, workers requiring requalification; and fourth, workers shift their priorities from purely financial well-being to general well-being. Currently, the economic landscape favors workers. Companies that apply resources to meet broader wage, training, and welfare requirements are likely to perform better than those that ignore them.
Happier days for stocks
Sierra Alpha Research
March 24: the
The index is once again attempting to regain its 200-day moving average, and in doing so, it would certainly confirm that the short-term strength we have seen over the past week may materialize into a more sustained upside move.
I also see many new highs in my weekly scans, focused on energy, financials (but not big banks!), healthcare, industrials and materials.
So markets are still choppy sideways as many individual names break out. I think that says more about the growth orientation of our major equity benchmarks and how less than ideal charts in the technology, communication services and consumer discretionary sectors can do so that a fairly robust environment for equities looks less robust at the upper index level.
A strong case for gold
Guns, butter and gold
In front of the herd
March 23: Is there a connection between increased global conflict and increased military spending, and gold? We see two points of contact. First, gold is a safe haven in times of political or economic uncertainty. The second is that military spending fuels the debt.
Defense is the largest part of the US federal budget behind Social Security. Both of these are increasing debt exponentially, adding deficit after deficit to the growing pile, which when combined with Covid-related government spending stands at a jaw-dropping $30 trillion…
A country must decide how much to spend on defence/military (weapons) versus the amount budgeted for items needed for non-defensive purposes (butter). For the United States to remain the “cop of the world”, it will have to keep its military strong. There can be no relaxation. This has a major cost.
As investors, we need to pay attention to what is happening around us. Military spending is rising globally and central banks are hoarding gold. In these uncertain times, it might be wise to follow the smart money and do the same. We continue to buy physical gold and silver during declines and invest in quality junior resource companies, which historically offer the most leverage in the face of rising metal prices.
—Richard (Rick) Mills
Who’s Afraid of High Gas Prices?
March 23: The most consistent theme in our consumer coverage over the past year has been that inflation is the biggest challenge to consumer spending; that’s why we’ve lowered our full-year consumer spending forecast in each of the past three months. Other headwinds like Fed tightening, the Omicron Variant and supply shortages all take precedence over prices rising faster than incomes creating an unsustainable backdrop for consumer spending growth. That said, concerns about the recent spike in gas prices exaggerate the importance of this factor on consumer spending.
None of this means that rising gas prices are positive for consumer spending. Yet a lucid assessment of the facts on this subject suggests that higher gasoline prices alone are not enough to have a significant impact on overall consumer spending, even if they do slow spending growth in many countries. other categories. Over time, wages have outpaced gas prices, which means that even though gas prices are near record highs, spending on gas and other energy products is not as high as it was. were in previous cycles. High gas prices are a headache, but not a sign of serious illness for consumer spending.
—Tim Quinlan, Shannon Seery
Larry Fink on de-globalization
Larry Fink, President and CEO of
(ticker: BLK), writes an annual letter to shareholders that is read attentively on Wall Street. In this year’s letter, Fink proclaimed the “end” of globalization. Here is an exerpt :
March 24: Russia’s aggression in Ukraine and its subsequent decoupling from the global economy will prompt businesses and governments around the world to reassess their dependencies and reanalyze their manufacturing and assembly footprints – something Covid had already prompted to many people to start doing.
And while dependence on Russian energy is in the spotlight, companies and governments will also look more broadly at their dependencies on other nations. This may lead companies to develop more of their operations onshore or nearshore, leading to faster withdrawal from certain countries. Others, such as Mexico, Brazil, the United States or manufacturing centers in Southeast Asia, could benefit.
This decoupling will inevitably create challenges for businesses, including higher costs and pressure on margins. While corporate and consumer balance sheets are strong today, giving them more cushion to weather these challenges, a large-scale reorientation of supply chains will be inherently inflationary.
To be considered for this section, material, along with the author’s name and address, should be sent to [email protected]