The market got whacked today as the grim reaper, the inverted yield curve, finally showed its face for all the world to see.
80 to 85% of all trading is now done by “bots” in one form or the other. Algorithms, black boxes, dark pools, and program trading.
I look at this an advantage though and not a negative as you can piggyback the moves both ways.
As soon as those treasury yields crossed to create an inverted yield curve, the algos went nuts and they sold. They were programmed to do so. You can’t blame them, they’re only loveable terabytes with no emotion.
This was quickly jumped on by the media as a leading recession indicator. The 2s-10s spread has inverted in front of every recession since 1980. Every time, so people pay attention when this event happens.
But……
The average length of time between the first inversion and the start of each recession since 1980 has averaged 18 months, with the range being as little as ten months to as many as two years. Translation: it is unlikely that a recession is imminent.
So, there will be no recession tomorrow or even next week. But what we all have learned from playing this stock market game, is that market players ALWAYS shoot first and ask questions later, hence the kneejerk today.
All sectors were red today, even utilities were down almost 1%. Most sectors were down about 3% which is a massive, no matter how you try to spin it.
Retail XRT -4.1%, Energy XLE -4.0%, Software IGV -3.4%, Financials XLF -3.5%, Oil & Gas Equip XES -6.0%, Semiconductors SMH -3.2%.
Gold & silver were up but maybe not up as much as you may have thought, but they have had big runs so they are consolidating.
The 10-year yield was down 5.9% today. The yield closed at 1.58% today. It yielded 3.2% in November.
It’s hard to get too empowered on the short side here because we have the Fed, commonly referred to the Plunge Protection Team. Why do I have the feeling that they are already dusting off their microphones to put a little ease in this market. Their job is not to save the stock market, but you know they probably will anyway, especially with POTUS incessantly barking at them. We’ll see.
Will they just talk smack or will they perhaps do an emergency cut? A lot of things could happen and the rumors will probably start swirling as soon as tomorrow.
I told you last night that I don’t trust first-day rips like yesterday because YOU CANNOT TRUST THEM.
We will see where all of this decides to go until the next headline, but for now, I’m sitting on my hands.
Robert Shiller on recessions. This is pretty good, especially the last sentence.
