The Top Line



No hope for the slope!  Stocks fell yesterday on more trade jitters after comments made by the President spooked investors.  Strong consumer sentiment numbers were not enough to keep stocks above water and the yield curve continues to ring the warning bell.




  1. The yield curve inversion is a thing again. Yesterday’s market action, though somewhat chaotic for stocks, was mostly marked by extreme moves in US Treasuries.  Ten-year treasury yields fell -6 basis points yesterday as investors clamored for safety and yield in a yield-starved global market.  Another factor impacting yields is low inflation expectation.  If investors are expecting low inflation, they demand less yield on their fixed income investments.  The recent moves in the longer maturity treasuries have impacted the yield curve, as measured by the difference between 3-month T-bills and 10-year treasury notes.  Normally that difference is positive with higher yields paid for longer investments and when the relationship reverses, causing a yield curve inversion, it is usually an early warning sign of an upcoming recession.  WHILE YOU SLEPT, the 3-month / 10 year yield curve inverted further to -12.6 basis points, which is the most negative the curve has been since 2007.  The longer the curve remains inverted the greater the chance of a future recession, based on history.


  1.  Consumers, they are confident… really confident!  Yesterday, the Conference Board released its Consumer Confidence indicator which came in beating the 130.0 estimates at a hot 134.1, compared to last month’s read of 129.2.  The indicator is a composite between reads on Present Situation and Future Expectation and the feelings about the present situation came in at 175.2, an 18 year high.




Stocks started the session up despite negative trade comments made over the weekend but ultimately traders faded the rally causing stocks to close in the red as reality sunk in.  The selloff in stocks occurred despite a strong consumer confidence number and an upcoming month-end that will require some rebalancing in favor of equities.  Many asset managers maintain a set balance between stocks and bonds and when one significantly outperforms the other, portfolios need to be rebalanced.  The recent strong rally in bonds relative to stocks will require some managers to increase their equity holdings while decreasing bond holdings.  The rebalances often occur around month end, so it would be expected that stocks would have some strength leading up to Friday, the last trading day of May.  That was not evident in yesterday’s trade as the S&P500 traded down by -0.84%, the Dow Jones Industrial Average fell by -0.93%, the Russell 2000 dropped by -0.67%, and NASDAQ 100 slipped by -0.31%.  Bonds rallied yesterday bringing the 10 year treasury yield to 2.26%, down by -6 basis points to its lowest level since Sept. 2017.




–  The Richmond Fed Manufacturing Index is due this morning and is expected to come in at 7, up from last month’s reading of 3.  While these regional Fed readings are usually not broadly followed, manufacturing seems to be surprisingly on the downside lately which is causing a stir amongst economists and lawmakers.  Just yesterday, a similar indicator from the Dallas Fed posted a -5.3% drop when economists were expecting a growth of +6.2%, surprising many.


–  The Treasury will auction $18 Billion 2-year floating rate notes and $32 Billion 7-year notes.  The auctions will draw some attention today as traders are watching the yield curve carefully.


–  Abercrombie & Fitch and Dick’s Sporting Goods report earnings before the bell.  Post market earnings include Palo Alto Networks along with PVH.

daily chartbook 2019-05-29


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