Yield Curve Inversion Reaches A Milestone


If Jay Powell is aiming to become the guy alone in the corner at a party, he made headway yesterday. Powell kicked off the first of his two day testimony in front of Congress with a warning that interest rates may need to head higher than previously anticipated and stay there longer than expected. Upon release of his prepared testimony yesterday morning, markets turned south and stayed that way. The S&P 500 fell 1.5% while the Nasdaq Composite dropped 1.25%.

Yield Curve Inversion Reaches A MilestoneSourceMoneyGuru-https://www.mgkx.com/3713.html

Following a strong January in which investors began digging their way out of last year’s losses, investors hit a level of argillaceous soil in February. Stronger than expected economic data has thrown water on what many hoped would turn out to be a “soft landing” for the economy and markets have been stuck in the mud for the last six weeks.SourceMoneyGuru-https://www.mgkx.com/3713.html

If you recall on Monday, I mentioned the probability of a half point rate hike at this month’s Federal Reserve Open Market Committee (FOMC) meeting was just 31%. Following Chairman Powell’s testimony yesterday, that has since increased to a 74% probability. That would put interest rates at 5.25%.SourceMoneyGuru-https://www.mgkx.com/3713.html

In the wake of Powell’s testimony on Tuesday, yields on the 2 year note shot up near 5%, causing the yield curve to become severely inverted. The yield on 2 year notes is a full 1% higher than that of 10 year notes. According to an article in Bloomberg, this is the most the yield curve has been inverted by in forty years.SourceMoneyGuru-https://www.mgkx.com/3713.html

My takeaway from this so far is that any economic data being released will potentially produce some short term volatility, at least intraday. Currently, the VIX is sitting just under 20, slightly higher than its long term average. Keep in mind, a 19 VIX means the market has an expected intraday range of 1%, which is currently about 40 points in the S&P 500. So it will not surprise me if we see trading ranges that get as wide as +/-40 points from the prior day’s close, or 80 points wide in total.SourceMoneyGuru-https://www.mgkx.com/3713.html

Jay Powell will resume his testimony this morning after leaving most of us with a coconut water aftertaste on Tuesday. Just as he’s beginning his testimony, we’ll get a look at the latest JOLTs number, which represents the number of job openings available. The market is expecting that number to come in at 10.5M. But all eyes will certainly be focused on Friday’s employment report. As long as employment remains strong, it’s hard to see the Fed easing up from their more hawkish stance toward rates. As always, I would stick with your investing plan and long term objectives.SourceMoneyGuru-https://www.mgkx.com/3713.html SourceMoneyGuru-https://www.mgkx.com/3713.html




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