Yield Curve Flattening Again: 10-Year Yield Down 15 Basis Points Since October 5

Inflation worriers and treasury bears take note: Bond yields are falling again. Economy is not as strong as it looks.

The headline GDP was 3.5% but the headline number looks much stronger than it really is. A huge inventory adjustment contributing 2.07 percentage points to the headline number. Government spending was also on the high side, contributing 0.56 percentage points.

Stocks Resume Slide

Tech Worries

The Wall Street Journal reports Tech Worries Slam Stocks.

> A powerful slump in technology and internet stocks spread Friday, putting the S&P 500 in danger of joining the Nasdaq Composite in correction territory as investors continued an October retreat from risky assets.

> U.S. stocks are in the midst of one of their biggest selloffs in years, sparked by worries about the impact of tariffs on U.S. company earnings, as well as whether a slowdown in China and Europe growth could spill over into the U.S. economy. Fast-growing internet and tech firms have been some of the hardest hit stocks during the market turmoil of the past few weeks, with the tech-heavy Nasdaq Composite on track for its worst month since 2008.

> Quarterly sales from Amazon.com and Google parent Alphabet disappointed investors, sending the two tech behemoths’ stocks sharply lower and pushing prices of everything from retail stocks to copper prices lower. This week’s selloff has been characterized by widespread buying and selling, leading to whipsaw trading that has unsettled many investors.

> The S&P 500 fell 2.8%, breaching the 2637.68 level that would put it 10% below its last record and in correction territory for the first time since February’s selloff.

> The Nasdaq Composite slumped 3.6%, erasing Thursday’s rebound and putting it down 12% for the month, and the Dow Jones Industrial Average fell 2.1% to 24456. A close below 24145.55 would put the blue-chip index in correction territory.

Dip Buyers Out Again

In the time it took to write the above and create charts, much of those early equity losses have been clawed back.

The dip buyers are out again. That's a strategy that has not exactly been working this past month.

I don't know where stocks close, nor does anyone else. But at some point, buying the dip is going to be a huge mistake (likely starting this month). Stock are insanely overvalued.

Expect Lost Decade

These declines are just the beginning. For discussion, please see Expect a "Lost Decade", Stock Market Rout "Only Just a Start".

Also consider Eight Reasons a Financial Crisis is Coming.

It's been about 10 years since the last financial crisis. FocusEconomics asked me if another one is due. The short answer is yes.

Click for details.

Mike "Mish" Shedlock

Comments (8)
No. 1-6
Ted R
Ted R

It was nice while it lasted.

DFWRealEstate
DFWRealEstate

And just as the publicly traded homebuilders were becoming a bloodbath, those yields came crawling back down. Why? because they have to...if there's going to be anything left of what the spokesmodels affectionately call the "economy". :)

Casual_Observer
Casual_Observer

Hot off the presser:

MorrisWR
MorrisWR

The stock downturn is no surprise, especially for readers of this blog. The dip buyers will get burned (and may have already). I have had a profitable few weeks on the downside (80% gain) using puts on the SPY, even with a few trades stopped out for losses. I still maintain this downturn should have been fairly easy to see coming. I see more downward pressure going into next year but am slowing my put trading waiting for an upward correction. M

Realist
Realist

Hi Morris. Stock downturns happen all the time. Markets do go up and down. As for readers of this blog; they might indeed be surprised. When you read that the the market is due for a 40% (or more) downturn many times a year for many years, you might be forgiven for ignoring the warning. Is this finally going to be the 40%+ drop? Or is it just another opportunity to buy a few things that are temporarily on sale?

jiminy
jiminy

Money is coming from the stock market sell off, into bonds. Its simply capital flows, not any prediction of a soft economy. If the market continues to sell off, the yields will further soften.