Happy Friday, readers. I’m Phil Rosen. As today is September 16, that means there are 107 days until 2023.
But most market watchers I’ve spoken to this week aren’t too upbeat going into the homestretch of the year.
And with traders laying bets for a jumbo rate hike at the next Fed meeting, the turmoil can last well beyond this year.
Today I’m breaking down a key technical indicator that’s historically been a pretty good indicator of a coming recession.
Let’s get started.
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1. Death, taxes, and an inverted yield curve preceding a recession. Maybe that third one isn’t quite so guaranteed — but history tells us the bond market’s recession warning is a pretty reliable signal of a downturn in the near to medium-term.
The two-year yield on Thursday jumped eight basis points, to 3.86%, 39 basis points above the 30-year Treasury yield of about 3.47%.
The current spread between the two-year and 30-year bonds is the steepest inversion in nearly 22 years. Meanwhile, the spread between the two-year and 10-year Treasury notes has inverted several times this year already.
So what does an inverted yield curve mean, again?
Effectively, it’s an indicator of a recession on the horizon. It flips conventional thinking that says long-term debt carries more risk than short-term commitments. When short-dated bonds yield more than longer term debt, it implies investors are anticipating greater near-term risk.
“A deepening of the yield curve perfectly reflects all the doom and gloom that is spreading across Wall Street. It appears that inflation is proving to be more troubling than many thought and the risk of a severe recession is growing,” Edward Moya, senior market analyst at OANDA told Insider’s Brian Evans.
But it’s not just bonds that are flashing a warning. The stock market’s fear gauge is off, too, according to DataTrek.
In a Thursday note, DataTrek co-founder Nicholas Colas said the VIX’s current reading of about 26 was too low, signaling stocks haven’t bottomed.
“A VIX below 28 in the current macro environment seems like the wrong price to us, even if it is above its long run average,” Colas said. “The worst-case scenario is that it reflects the beginning of a slow grind lower for corporate earnings. Not enough to shock, but still enough to erode investor confidence.”
How confident are you in the current market? Do you think any policy changes will improve the economic outlook? Email firstname.lastname@example.org or tweet @philrosenn.
2. US stock futures moved lower early Friday as investors brace for aggressive Fed policy moves. Most commentators are sounding the alarm that an unprecedented third consecutive outsized rate hike is not only on the table, but necessary. Here is your morning market wrap.
3. Earnings on deck: North Bud Farms, Cheetah Mobile, and Mogu Inc, all reporting.
4. Wall Street is warning that stock valuations are too high after August’s hot inflation reading. A number of market experts said recently that it’s becoming more and more apparent the Fed will have to remain hawkish — and that means more pain for stocks ahead.
5. Railroad stocks climbed Thursday as a tentative deal averted a planned labor strike by thousands of rail workers. The Association of American Railroads estimated that a work stoppage by that many staffers could have cost the US economy more than $2 billion per day. Here’s what you want to know.
6. Russia said its natural gas exports to Europe will plunge by about 66%. Deputy Prime Minister Alexander Novak said shipments of the fuel will drop by 50 billion cubic meters this year — all while Gazprom’s output grows on strong Chinese demand.
7. Apple has dethroned Tesla as the most-shorted US stock. Elon Musk’s electric vehicle company held the title for 864 days. Compared to Tesla’s short interest of $17.4 billion, bets against Apple stock have hit $18.4 billion.
8. HSBC’s global investment chief explained the “false rally” for stocks and how to spot the true start of a new bull run. Willem Sels told Insider he expects markets to struggle to gain upward momentum in the near term, although he thinks June saw the cycle hit bottom. He also broke down his thoughts on the current housing market.
9. A financial planner and author said there are three specific questions you should ask yourself before quitting your job without a backup. The Great Resignation has spurred many people to leave stable work without a plan. But if you do decide to go through with it, he thinks you should do these two things with your money first.
10. FedEx shares plunged more than 19% after the delivery giant ditched its earnings outoook. Often considered a bellweather stock, the sinking shipping brand fueled broader concerns of a looming downturn. Dig into the numbers here.
Curated by Phil Rosen in New York. (Feedback or tips? Email email@example.com or tweet @philrosenn).
Edited by Max Adams (@maxradams) in New York.