Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Stock Market Pause Should Extend - 21st April 19
Why Gold Has Been the Second Best Asset Class for the Last 20 Years - 21st April 19
Could Taxing the Rich Solve Income Inequality? - 21st April 19
Stock Market Euphoria Stunts Gold - 20th April 19
Is Political Partisanship Killing America? - 20th April 19
Trump - They Were All Lying - 20th April 19
The Global Economy Looks Disturbingly Like Japan Before Its “Lost Decade” - 19th April 19
Growing Bird of Paradise Strelitzia Plants, Pruning and Flower Guide Over 4 Years - 19th April 19
S&P 500’s Downward Reversal or Just Profit-Taking Action? - 18th April 19
US Stock Markets Setting Up For Increased Volatility - 18th April 19
Intel Corporation (INTC) Bullish Structure Favors More Upside - 18th April 19
Low New Zealand Inflation Rate Increases Chance of a Rate Cut - 18th April 19
Online Grocery Shopping Will Go Mainstream as Soon as This Year - 17th April 19
America Dancing On The Crumbling Precipice - 17th April 19
Watch The Financial Sector For The Next Stock Market Topping Pattern - 17th April 19
How Central Bank Gold Buying is Undermining the US Dollar - 17th April 19
Income-Generating Business - 17th April 19
INSOMNIA 64 Birmingham NEC Car Parking Info - 17th April 19
Trump May Regret His Fed Takeover Attempt - 16th April 19
Downside Risk in Gold & Gold Stocks - 16th April 19
Stock Market Melt-Up or Roll Over?…A Look At Two Scenarios - 16th April 19
Is the Stock Market Making a Head and Shoulders Topping Pattern? - 16th April 19
Will Powell’s Dovish Turn Support Gold? - 15th April 19
If History Is Any Indication, Stocks Should Rally Until the Fall of 2020 - 15th April 19
Stocks Get Closer to Last Year’s Record High - 15th April 19
Oil Price May Be Setup For A Move Back to $50 - 15th April 19
Stock Market Ready For A Pause! - 15th April 19
Shopping for Bargain Souvenirs in Fethiye Tuesday Market - Turkey Holidays 2019 - 15th April 19
From US-Sino Talks to New Trade Wars, Weakening Global Economic Prospects - 14th April 19
Stock Market Indexes Race For The New All-Time High - 14th April 19
Why Gold Price Will “Just Explode… in the Blink of an Eye” - 14th April 19

Market Oracle FREE Newsletter

Top 10 AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

A Better Yield Curve for Predicting the Stock Market is Bullish

Stock-Markets / Stock Markets 2018 Jul 18, 2018 - 07:03 AM GMT

By: Troy_Bombardia

Stock-Markets

The Treasury yield curve is flattening, which has some investors and traders turning bearish. Most people focus on the 10 year – 2 year yield curve, which is close to inverting.

*Investors and traders only need to be careful once the yield curve inverts. A flattening yield curve on its own means nothing until it becomes inverted.


As you can see, the 10 year – 2 year yield curve is close to being inverted. It currently stands at 0.24%

HOWEVER, the 10 year – 2 year yield curve isn’t the best yield curve. The 10 year – 2 year yield curve tends to become inverted too early, which means that it becomes bearish too early.

The 10 year – 3 month yield curve is a better yield curve because it tends to invert later. When it inverts, it gives you a more timely SELL signal. The 2 year Treasury yield tends to be higher than the 3 month Treasury yield.

The 10 year – 3 month yield curve is still far from being inverted. It currently stands at 0.9%.

When the 10 year – 3 month yield curve falls to 0.9% for the first time in an economic expansion cycle, the stock market usually continues to go up.

Click here to download the data in Excel.

June 24, 2005

The stock market rallied for 2 more years before topping in 2007, even though there were multiple “small corrections” along the way.

May 16, 1995

The stock market went up over the next 5 years before topping in 2000. There was a “big correction” and multiple “small corrections” along the way.

December 20, 1988

The stock market rallied for another 1.5 years before starting a “big correction”, which the Medium-Long Term Model predicted.

September 29, 1980

The stock market rallied for another 2 months. Then it swung sideways for the next half year before starting a “big correction”.

 

August 31, 1978

The stock market rallied for the next 2 years, even though there were multiple “small corrections” and a “big correction” along the way.

January 23, 1973

The stock market started a bear market when the 10 year – 3 month yield curve flattened to 0.9%

July 8, 1963

The stock market rallied for 5.5 more years before a bear market. There was a “big correction” and multiple “small corrections” along the way.

Conclusion

The 10 year – 3 month yield curve is a better yield curve. Based on where it is today, the stock market will probably continue to rally in the medium-long term.

There is only 1 bearish case out of these 7 historical cases. That was due to OPEC’s oil embargo. Unless Trump’s trade war results in a global catastrophe and recession, that bearish case is unlikely to play out today.

Trump’s trade war with China is expected to shave less than -0.2% off of U.S. GDP growth. With the U.S. economy growing at 3-4% a year, this trade war will not have a big impact on the economy.

Click here for more market studies

By Troy Bombardia

BullMarkets.co

I’m Troy Bombardia, the author behind BullMarkets.co. I used to run a hedge fund, but closed it due to a major health scare. I am now enjoying life and simply investing/trading my own account. I focus on long term performance and ignore short term performance.

Copyright 2018 © Troy Bombardia - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules