thependulumswings

Friends

Stocks took a beating today fueled by lousy economic numbers overnight in Germany and China, and a yield curve inversion in the closely watched 2/10 year Treasury note spread. Now, late in the day the actual spread is not inverted (the 2 year is at 1.58% while the 10 year is at 1.59%), but for overreacting’s sake, we’ll just say that they are. You know the drill, an inverted yield curve either means we are heading into recession or at least it will be the cause of one. Yes, for whatever reason you choose (political, doomsday punditry, self-loathing) we are once again determined to talk ourselves into a recession. Given the overwhelming negative sentiment at the moment, stocks simply didn’t have a chance today.

By the close, the Dow Jones Industrial Average was down 800 points to finish the day at 25,479. The S&P 500 was down 85 points to close at 2,840. Gold was up $11 to trade at $1,526 per ounce, while oil was down $2.01 to trade at $55.09 per barrel WTI.

Yes, folks we will experience another recession at some point. As a matter of fact, if we are lucky enough to live for a couple more decades (fingers crossed) we are going to experience more recessions and more bear markets for stocks. Capitalism produces business cycles. Now, central bankers have been desperately trying to eliminate business cycles for some time, but eventually they face diminishing returns for their efforts (see Japan). We are likely to see the Fed cut rates again soon (never give up), but it is questionable just how that will help. I guess if mortgage rates drop to 1% the housing sector is safe. And, by the way for investors and planners who need to provide income at retirement, negative interest rates might be a problem (yes, more than a trillion dollars of debt has negative yield around the globe- I’m not kidding). So… will the Fed be able to get out in front of this coming recession and cut it off at the pass? Are negative yields coming to a financial institution near you? Or, will the “don’t fight the Fed” vigilantes prove to be right once again as TINA shows off her market powers? Insert thinking guy emoji.

Have a nice evening everyone.

Jim