Weekly Market Update with Brian Ransom 1 April 2022
Welcome to the weekly market update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth and here’s what happened in the market this week.
The market continues to extend gains above the 2-month downward trading pattern established at the beginning of the year. Currently, the S&P is up over 9% from the lows in early March.
In the news this week, the US continues to sanction parts of the Russian economy, including its technology segment. Consumer spending slowed in February as inflation showed signs of affecting consumer morale. And the Biden administration announced that they would tap strategic oil reserves to help stem higher prices throughout the world.
Something seemingly alarming happened earlier this week. Briefly, it appeared that the yield curve might invert. As discussed in previous episodes, under normal market conditions, the 10-year treasury bond is supposed to have a higher yield than the 2-year. But sometimes under abnormal market conditions, that curve will invert.
This yield curve inversion phenomenon has been a reliable signal for past recessions marked here in the shaded grey area. The 10-2 curve inverted in ’78 when Paul Volcker rapidly increased interest rates to fight inflation. A recession hit two years later. The curve inverted again in 1980 and again, a recession hit in ’81. 9 years later, the curve inverts followed by a brief recession in 1990. It inverted twice in the years prior to the Dotcom. Twice leading up to the Global Financial Crisis. And it briefly inverted about a year before the pandemic recession in 2020.
The problem is, not all economists believe the 10-2 is the best yield curve to follow. The 10-year minus 3-month is often more reliable as the 3-month treasury bill reflects what the Fed has actually done vs what the market believes it might do. Since the 1980’s this yield curve has inverted 4 times, preceding the previous recessions within a much closer time frame. Interestingly, this part of the curve is NOT inverting. In fact, it’s steepening. That doesn’t mean it won’t invert in the future, but right now, this curve remains bullish.
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1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved March 31, 2022, from FactSet Database.
2.Federal Reserve Bank of St. Louis, 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity [T10Y2Y], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/T10Y2Y, March 30, 2022.
3.Federal Reserve Bank of St. Louis, 10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity [T10Y3M], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/T10Y3M, March 30, 2022.
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